application of six sigma in finance a case study

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Application of Six-Sigma in finance: a case study

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Walfried Lassar , Raúl Montalvo

TJPRC Publication

Purpose: This paper explores to provide a picture of the existing research and suggest potential chances for academic enquiry in connection to the operations management. Design/methodology approach: The researchers reviews the existing literature at the heart of the operations in manufacturing company. This literature link up to operations system in order to review the current state of thought development across the disciplines (ERP, TOC, JIT, VAE, Lean Six Lean Sigma, etc. Suggestions have been made for future research in those areas opportunities. Findings: The findings show that the extant literature is primarily based on operations system rather than integrated approach. In addition, the findings suggest on the best way the operations systems could be implemented in the manufacturing companies by the operations managers. The findings consider several areas of prospects for future inquiry. Practical Implication: This paper can be used by operations managers in manufacturing companies as well as service organizations. Originality/Value: This paper build on our knowledge on operations management in manufacturing companies as it relates to key elements of operations disciplines that had been previously used in literature to buttress the exiting literature in the paper and identify research opportunities.

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Marco Moura

McGraw-Hill

Dr. Anuj Gupta

Welcome to the seventh installment in our series of reference guides designed to help you in your career. Our previous guides have been focused on the structure and development of resumes and cover letters.

Manoj Anand

Narayan Chandra Ghosh

Business intelligence (BI) can be defined as a collection of approaches for gathering, storing, analysing and providing access to data that helps users to gain insights and make better fact-based business decisions. It should be defined wider than just referring to BI software applications and analytics to incorporate a more strategic approach to better decision-making. Business intelligence (BI) is the set of techniques and tools for the transformation of raw data into meaningful and useful business relevant information to help strategy maker to take business decisions. Business intelligence (BI) has two basic different meanings related to the use of the term intelligence. The primary, less frequently, is the human intelligence capacity applied in business affairs/ activities. Intelligence of Business is a new field of the investigation of the application of human cognitive faculties and artificial intelligence technologies to the management and decision support in different business problems. The second relates to the intelligence as information valued for its currency and relevance [1]. The basic components of Business Intelligence are gathering, storing, analysing and providing access to data (see Figure below). Gathering Data : Gathering data is concerned with collecting or accessing data that can then be used to inform decision making. Gathering data can come in many formats and basically refers to the automated measurement and collection of performance data. For example, these can come from transactional systems that keep logs of past transactions, point-of-sale systems, web site software, production systems that measure and track quality, etc. A major challenge of gathering data is to be sure that the relevant data is collected in the right way at the right moment. If the data quality is not controlled at the data gathering stage then it can jeopardise the entire BI efforts. Storing Data : Storing Data is concerned with making sure the data is filed and stored in Fig 2: Fig-1. Components Relationship appropriate ways to ensure it can be found and used for analysis and reporting when required. When storing data the same basic principles apply that one should use to store physical goods i.e. books in a library, he are trying to find the most logical structure that will allow him to find easily and use the data. The advantages of modern databases (often called data warehouses because of the large volumes of data) is that they allow multi-dimensional formats so one can store the same data under different categories-also called data marts or data-warehouse access layers. Like in the physical world, good data storage starts with the needs and requirements of the end users and a clear understanding of what they want to use the data for.

Subrata Chattopadhyay

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Benefits of Six Sigma in Finance & Accounting

• Lean Six Sigma Applications

25 June, 2021

The international financial environment is more interconnected than ever, with the effects of unstable or inconsistent monetary policies being felt far beyond a single organization. In today’s globalized economy, policy and operational problems in one country’s financial organizations can have severe economic consequences across the world.

As these ripple effects become more and more noticeable, the ability to critically analyze and improve processes across an organization is an increasingly valuable career skill. While management techniques like Lean Six Sigma (LSS) have roots in manufacturing, there are numerous applications for LSS in finance and accounting that can help to correct operational inefficiencies and minimize risk across an organization.

Related content : What is Six Sigma?

Benefits of Six Sigma in Finance and Accounting

Applying the principles of Lean Six Sigma in finance and accounting can create competitive advantages for organizations in nearly every industry.

The case studies highlighted below offer a detailed look into how these methodologies and tools can be used to do more than streamline operations—they can also improve organization-wide culture.

Examples of Six Sigma in Finance and Accounting

Error reduction.

Lean Six Sigma allows for more focused and efficient operations in departments that are not entirely focused on manufacturing. One particular case study that focused on billing reconciliation found that billing errors resulted in customer accounts being charged less than the amount due approximately 60% of the time. After implementing LSS, however, the organization nearly eliminated this issue completely.

Problem Identification

One of the strengths of LSS is that it uses quantitative methods to identify key points of impact (KPI). Once efficiency issues within these KPIs have been identified, LSS can be used to discreetly and specifically tackle those problems.

When applying Lean Six Sigma in accounting, for example, the Accounts Payable department is a key area of opportunity. Imagine a company needs to process a higher volume of invoices. They can use LSS to define the guidelines for successfully processing a completed invoice, measure the current success rate based on those guidelines and analyze the data gathered to identify where and how waste is occuring. The results may show that while the invoices are completed in a timely manner, the wait time for managers to approve payments is too long. Once a bottleneck has been identified, the approval process can be improved to control the future success of the process.

For a similar application of Lean Six Sigma in finance, the processes associated with loans are key opportunities. For example, a bank that wants to streamline its credit processing operations can start by tracking every loan it processes for three months . The important factors to consider for this exercise are the time and effort required to fully process credit.

High variance in the amount of time it takes to complete these tasks is a sign that efficiency improvements can be made. From there, LSS can be used to build a process map that identifies all the steps, as well as the relationships between them. Common areas for improvement related to loan processing include reducing the amount of manually processed data and standardizing how loan applicant data is collected and stored.

Continuous Improvement

Lean Six Sigma is designed to be a continuous improvement system , so training in LSS continues to be useful well past its initial introduction. By implementing the DMADV (Define, Measure, Analyze, Design, Verify) process, organizations are able to apply it to the creation of new workflows and processes in addition to improving existing ones.

While the initial application of the methodology often focuses directly on specific product and process improvements, companies such as Capital One have found that applying lean six sigma in banking yields results that go far beyond their day-to-day work.

Studies that have looked at the long-term effects of applying Lean Six Sigma in large companies have found improvements across many areas of business. For example, throughout Capital One’s restructuring, one study identified the following LSS-driven benefits:

• Reduction in the rate of keying-in errors
• Increase in customer satisfaction
• Greater employee buy-in for LSS tools such as DMAIC

The Key to Successfully Using Lean Six Sigma in Finance

While Lean Six Sigma offers a powerful framework for improvement, effectively leveraging tools like process mapping often requires a culture shift in the organizations that adopt them. One of the key traits of successfully leveraging Lean Six Sigma in finance and accounting is the ability to step back and look at existing processes objectively to recognize that, even if a process has existed for decades, it may not be the most efficient way of doing things.

Another key element to success is recognizing how internal department processes may impact other stakeholders throughout and outside of an organization. For example, inefficiencies in processing invoices could make it more difficult for other departments to work with external vendors.

For processes with far-reaching ripple effects, like those in finance and accounting, it is helpful to have a certified Lean Six Sigma Black Belt professional to lead the project. This can ensure that key stakeholders are aligned toward a common goal and that teams can effectively manage the complexity of large-scale or company-wide process change.

Related Content : Six Sigma Belt Level Rankings

Career Benefits of Learning Lean Six Sigma

As research has shown , the application of six sigma in finance provides benefits when managing existing processes as well as when pursuing innovation. The methodology has expanded far outside of the manufacturing sector and is now used across virtually every industry.

Developing expertise in six sigma for both finance and accounting environments can help aspiring or current managers take their careers to the next level. PayScale shows the average salary for a Continuous Improvement Manager with a Black Belt Lean Six Sigma Certification is more than $93,000, compared to a salary of less than $83,000 for that role overall.

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Purdue University offers comprehensive online Lean Six Sigma (LSS) certificate programs designed for working professionals with varying levels of Lean Six Sigma experience. The online Lean Six Sigma certificate courses prepare professionals to satisfy the immense demand for Lean expertise, skills and certification.

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Six Sigma Case Study: Everything You Need to Know

Explore the field of Six Sigma Case Studies in our comprehensive blog. From defining the methodology to real-world applications, our 'Six Sigma Case Study: Everything You Need to Know' blog sheds light on this powerful problem-solving tool. Uncover success stories and learn how Six Sigma can drive efficiency and quality improvements in various industries.

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By analysing such case studies, one can gain insights into the successful application of Six Sigma in various industries and understand its impact on process improvement. Read this blog on Six Sigma Case Study to learn how real-world businesses have achieved remarkable process improvement and cost savings. 

Table of Contents  

1) Understanding Six Sigma Methodology 

2) Six Sigma Case Study 

a) Improving customer service 

b) Improving delivery efficiency 

3) Conclusion 

Understanding Six Sigma Methodology

By applying statistical analysis and data-driven decision-making, Six Sigma helps organisations identify the root cause of problems and implement effective solutions. It emphasises the importance of process standardisation, continuous improvement, and customer satisfaction. With its focus on rigorous measurement and analysis, Six Sigma enables organisations to drive efficiency, reduce waste, and deliver exceptional products and services. The methodology follows a step-by-step process called Define, Measure, Analyse, Improve, and Control (DMAIC). These five phases are briefly explained below: 

a) Define: The project goals and customer requirements are clearly defined in this phase.  

b) Measure: In this phase, data is collected to understand the process's current state and identify improvement areas.  

c) Analyse: This phase focuses on analysing data to determine the root cause of defects or variations.  

d) Improve: This phase involves implementing solutions and making necessary changes to eliminate the identified issues.  

Six Sigma Case Study  

In this section we discuss two Six Sigma Case Study that will help you understand and use it better.  

Case Study 1: Improving customer service  

This Six Sigma Case Study will focus on a telecommunications company facing significant customer service challenges. The issues included long wait times, frequent call transfers, unresolved issues, and many more. The company decided to apply Six Sigma methodologies to enhance customer satisfaction.  

a) Define phase: Using the DMAIC approach, the team began by defining the problem: long wait times and inefficient call handling. They set a goal to reduce average wait time and increase first-call resolution rates.  

b) Measure phase: In this phase, data was collected to analyse call volume, wait times, and reasons for call transfers. This helped identify bottlenecks and areas for improvement.  

c) Analyse phase: During this phase, the team discovered that inadequate training and complex call routing were key contributors to the problems. They also found that certain product issues required better resolution protocols.  

d) Improve phase: In this phase, targeted solutions were introduced and implemented to address these issues. The team revamped the training program, ensuring agents were well-trained and equipped to handle customer inquiries. They simplified call routing and introduced automated prompts for quicker issue resolution.  

e) Control phase: Finally, monitoring systems were established in the control phase to track key metrics and ensure sustained improvements. Regular feedback loops were implemented to identify emerging challenges and make necessary adjustments.  

The results were exceptional. Average wait times were reduced by 40%, and first-call resolution rates increased by 25%. Customer satisfaction scores improved significantly, leading to increased loyalty and positive word-of-mouth.  

This Six Sigma Case Study highlights how Six Sigma methodologies can drive transformative improvements in customer service. By focusing on data analysis, process optimisation, and continuous monitoring, organisations can achieve outstanding outcomes and deliver exceptional customer experiences. 

Understand the in-depth process of Six Sigma with our Six Sigma Yellow Belt Course . Join now!  

Case Study 2: Improving delivery efficiency

a) Define phase: The business used the Voice of the Customer (VoC) tool to understand customer needs and expectations. They identified prompt delivery, correct product selection, and a knowledgeable distribution team as crucial customer requirements. 

b) Measure phase: The team collected data to evaluate the problem of slow delivery. They discovered that their Order Fulfillment Cycle Time (OFCT) was 46% longer than competitors, leading to customer dissatisfaction.  

c) Analyse phase: The team brainstormed potential causes of slow delivery, including accuracy of sales plans, buffer stock issues, vendor delivery performance, and manufacturing schedule delays. They conducted a regression analysis, revealing that inadequate buffer stock for high-demand products was the main issue affecting delivery efficiency.  

d) Improve phase: The distributor implemented a monthly demand review to ensure that in-demand products are readily available. They emphasised ordering and providing customers with the specific products they desired.  

e) Control phase: The team developed plans to monitor sales of the top 20% of bestselling products, avoiding over or under-supply situations. They conducted annual reviews to identify any changes in demand and proactively adjust product offerings.  

By applying Six Sigma Principles , the plumbing product distributor significantly improved its delivery efficiency, addressing the root cause of customer dissatisfaction. Prompt action, data-driven decision-making, and ongoing monitoring allowed them to meet customer expectations, enhance its reputation, and maintain a competitive edge in the industry. This case demonstrates the power of Lean Six Sigma in driving operational excellence and customer-centric improvements. 

Take the next step in your professional development and boost your career by joining our Six Sigma Green Belt course .  

Conclusion  

We hope this blog gives you enough insights into the Six Sigma Case Study. This blog showcased the effectiveness of its methodology in driving transformative improvements. By applying DMAIC and using customer insights and data analysis, organisations have successfully resolved delivery inefficiencies, improving customer satisfaction and operational performance. The blog highlights how Six Sigma can be a powerful framework for organisations seeking excellence and exceptional value. 

Learn the six-sigma methodology to achieve business objectives with our Six Sigma Certification Training today!  

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Case Study Shows Six Sigma Role in Financial Services

Published: February 26, 2010 by Uwe H. Kaufmann

An international bank with 50 branches in Germany and approximately 300 employees decided in 2003 to adopt Six Sigma in all its business units in Europe. It then set out to use Six Sigma to implement one of its priority business strategies – significantly grow its car loan business in the next two years. The bank’s goal was to increase car loans by 100 percent in the first year, and by another 70 percent in the second year.

Pre-analysis Phase

In order to identify appropriate Six Sigma projects, a cross-functional team from sales, marketing and operations was formed to investigate the key drivers of car loan business and market share growth.

The team created a high-level process map and identified of the sub-processes and the relevant influence factors. The indicators were identified through a series of interviews with many process stakeholders. The process stakeholders did not know about process indicators but they were able to explain what kind of “critical numbers” they looked each month. Some of the numbers could easily be translated into indicators; others needed more effort to become obvious (Table 1).

A key success factor of this exercise was to have the respective sub-process owners contributing to pinpoint the specific problem areas.

From this pre-analysis, the team identified two Black Belt and two Green Belt projects (Table 2). The distinction between Black Belt and Green Belt was made depending on the urgency of the task. The reasoning was that full-time Black Belts could deal with the problem faster and more effectively than part-time Green Belts.

Car Loan Project’s Define Phase

The final project definition (Table 3) for one of the Black Belt projects had a narrow scope including only one sub-process – communication with car dealers. After the interviews and after pulling some data from the management information system, at least one reason for starting this project was clear. More than half of the car dealers had not turned over any loans to the bank during the last couple of months. In addition, marketing data told the team that it was much more expensive (about five times more) to acquire new car dealers than to work with existing ones.

One of the biggest obstacles at this point was engaging the process owner in the project. The car loan business process owner – the sales director – was one of the few managers who were very skeptical of Six Sigma. Additionally, the team was not used to working as a team: Different office locations for marketing/sales and operations led to a breakdown of communication between these functions. The first team meeting was a very quiet exercise with obvious and hidden finger-pointing.

However, the Black Belt did an excellent job in influencing the process owner, by helping him to understand and see the benefit of Six Sigma.

Lessons Learned:

• Make sure senior management buys in to Six Sigma first.
• Show staff at all levels right from the start that Six Sigma is an imperative that contributes to the strategy of the company.
• Start Six Sigma implementation with needed projects rather than some “learning and training projects.”

Voice of the Customer Is Key

During the interviews performed to identify business indicators and to determine a baseline, the team experienced a common opinion expressed by sales staff: “We could get more ‘turnovers’ if we had better conditions.” This is never a surprise in any business in the world. However, the team decided – as part of the Measure phase – to explore the voice of the customer even more. Supported by an external market research company, the team developed a client satisfaction survey that was conducted by telephone with about 130 car dealers. The results (Figure 1) were a surprise:

• About 60 percent of the dealers mentioned non-existing or poor communication with the bank as the biggest driver for dissatisfaction.
• About 20 percent indicated the interest rate for the car loans seemed too high.

During the Analysis phase, the team focused on those two issues. The team first decided to examine the communication process between the sales team and the clients. Surprisingly, it found that there was no process. The sales representatives complained about the workload they had to do every day. They were kept busy preparing reports, making sales presentations and attending a lot of internal meetings. They did not really focus on talking to their clients. One of the typical comments was: “If I have some time left, I give my clients a call.”

The analysis of the interest rate revealed an additional, even worse issue: Some of the clients did not know the newly reduced interest rate of the bank.

The root cause for this serious fault was that the communication channel between marketing and operations simply did not work well. Immediate action was taken to inform all clients about the better rate.

• Do not assume the company knows what the customers want. Ask them.
• Do not blame people for problems. It is the process which needs to be fixed.

Implementing Solutions and Sustaining the Gain

A couple of days after the market research company talked to the car dealer clients, the contacts produced by the former “sleeping dealers” went up, even though the process had not been touched (Figure 2).

The customer satisfaction survey phone calls had created a positive impact on the car dealers, who perceived that the bank did value them as priority clients. Another reason for business growth was the communication of the new rates, which were more aggressive and competitive.

The Six Sigma team developed solutions for addressing the main problem root causes:

• Development of a communication process between sales representatives and clients.
• Development of a monitoring tool to alarm sales in case of inactivity of clients.
• Refinement of the roles of marketing, sales and operations, resulting in less administrative work for sales personnel in order to give them more time for their first priority – talking to clients.
• Redefinition of internal interfaces to improve communication between departments.
• Production of a marketing handbook to support clients in selling the bank’s services.

Especially during the Improve phase, the presence and support of one of the car dealers was essential. He gave the important input about how often and in what way he would like to be contacted by the sales force.

The solutions required some financial investment. Getting approval was easier than the team had thought it would be. The major factor was the data about the additional business and about the decrease in the rate of inactive car dealers. The team used the data to extrapolate the growth for a one-year period and compared that figure with the estimated cost of the solutions. The sales director supported the solutions 100 percent.

This phase also included:

• Communicating the changes to the whole organization.
• Describing the new process in the operational manual.
• Training all people who were involved in the process.

The Control phase of the project was about putting mechanics in place to make sure the process improvements would last. Part of control was to make the “dealer inactive rate” part of the company’s management information system. The objective was to show the actual inactive rate monthly and to take action if it deviated from the “norm” (Figure 3).

To decide whether a deviation was critical or not, the team implemented a control chart. This was built using the weekly inactive rate after the process had stabilized, a quarter after implementing the changes.

Using a control chart for this purpose seemed to some to be questionable. At the beginning, a lot of education in how to use control charts was needed. It was stressed that the chart was just a measuring device; the importance was in what was done in reaction to movements within or without the control limits.

• Measuring a process tends to change the behavior of people; measuring the right indicators tends to change the behavior in the right direction.
• Involving clients in project work normally builds a long-term relationship, with benefits for both the clients and the business.
• Understanding control charts means knowing they are primarily signals of when changes in the process are significant enough to require action.

Business Improvements: Now and in the Future

After implementing the changes and after the results became obvious, Six Sigma gained momentum within the bank. The start of further Six Sigma projects did not depend on a push from senior management, but became more and more part of normal business. The sales director showed his newly acquired commitment by proposing a Six Sigma team for a reward-and-recognition event at company headquarters.

In addition to the increased profits, the results from this project included:

• The bank gained valuable information about the voice of the clients and their needs, and the impact of internal processes upon that.
• The team experienced the power of teamwork, communication and process analysis, not just the application of complex statistical tools.
• Additional improvement opportunities were identified during the project work, e.g., restructuring the client communication process in other business areas.

Author’s note: Further details of this case study, and Six Sigma in service processes in general, can be found in the book Six Sigma in Transactional and Service Environments by Hasan Akpolat, Gower, September 2004.

About the Author

Uwe H. Kaufmann

Six Sigma for improving cash flow deficit: a case study in the food can manufacturing industry

International Journal of Lean Six Sigma

ISSN : 2040-4166

Article publication date: 14 May 2020

Issue publication date: 1 December 2020

Cash flow deficit situations and working capital control are major challenges for many companies, especially those whose suppliers and clients have strong bargaining power. This study aims to describe the application of the Six Sigma methodology for solving these problems in a large German food can manufacturing company.

Design/methodology/approach

This paper follows the qualitative methodology of case study research. During different define, measure, analyse, improve and control process phases, the problem and critical aspects are identified to improve the quality of the payment process and improvements are suggested and implemented.

The results provide evidence of how Six Sigma can be useful in administrative–financial processes that are carried out within a company. This result is particularly interesting because it is about processes that have not applied Six Sigma methodology. For the company studied, this methodology has balanced its cash flow and this meant large amounts of savings, especially in bank interest to avoid having to ask for bank credits.

Originality/value

This case can be extrapolated to other companies, regardless of the company size, that present similar symptoms of cash deficit, especially if their bargaining power with suppliers and customers is low.

• Process improvement
• Accounts payable
• Can industry
• Cash flow deficit

Sánchez-Rebull, M.-V. , Ferrer-Rullan, R. , Hernández-Lara, A.-B. and Niñerola, A. (2020), "Six Sigma for improving cash flow deficit: a case study in the food can manufacturing industry", International Journal of Lean Six Sigma , Vol. 11 No. 6, pp. 1105-1126. https://doi.org/10.1108/IJLSS-12-2018-0137

Emerald Publishing Limited

Copyright © 2020, Maria-Victòria Sánchez-Rebull, Ramon Ferrer-Rullan, Ana-Beatriz Hernández-Lara and Angels Niñerola.

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Six Sigma is a philosophy that pursues excellence, offering reliable products or services. There is no standard definition about it. However, it is clear that it has two well-defined perspectives ( Prabhushankar et al. , 2008 ). From a business point of view, Six Sigma is a powerful methodology that enhances the efficiency of business processes and significantly reduces product defects ( Antony, 2006 ; Kwak and Anbari, 2006 ). This allows to achieve customer satisfaction ( Karout and Awasthi, 2017 ; Raisinghani et al. , 2005 ). On the other hand, from a statistical point of view, its goal, as its name suggests, is the reduction of variability in business processes ( Kwak and Anbari, 2006 ; Linderman et al. , 2003 ; Snee, 2004 ). Six Sigma means that the company offers only 3.4 defects per million opportunities (DPMO), which means a high quality of 99.99966%. Its success in the industry began in the late 1980s when Motorola got the Malcolm Baldrige National Quality Award for its improved competitiveness through this quality strategy ( Raisinghani et al. , 2005 ). Since then, it has been a business process improvement strategy that has reached all kinds of companies, industrial and services companies, including small and medium-sized enterprises ( Vendrame Takao et al. , 2017 ) and, consequently, to all the processes.

Six Sigma has also been defined as a powerful problem-solving strategy ( Prabhushankar et al. , 2008 ). There are multiple cases in literature applying Six Sigma and achieving substantial improvements in its performance ( Snee, 2004 ) on employee satisfaction ( Sunder, 2013 ) or increasing customer satisfaction ( Karout and Awasthi, 2017 ) or solving specific problems in transactional projects ( Antony et al. , 2012b ).

The objective of this paper is to highlight the potential of Six Sigma methodology, detailing the problems of cash carried out in a large food can enterprise. Six Sigma has been previously implemented in other transactional environments ( Antony et al. , 2012b ). The case is interesting because in food can industry, suppliers and clients have great negotiation power and they influence and mark the rules, often very inflexible, in their conditions and payment terms. Porter pointed out the can manufacturing industry, to which the studied company belongs, is one of the industries whose collective resistance is “intense” ( Porter, 1979 , p. 137). The bargaining power of clients in an industry affects its competitive environment and also its ability to generate profitability ( Porter, 2008 ). Strong clients, with high bargaining power can pressure the company to lower prices, improve product quality, set longer payment terms, etc. and all this represents costs for the company. Also, strong suppliers can also take advantage of their power, especially in terms of payment terms and supply time. Therefore, companies from this industry usually present liquidity problems.

Next, the structure of the article is detailed. Following this introduction, a theoretical part focused on the food can industry and its cash flow problems is presented in Section 2. Section 3 is dedicated to methodology and it briefly explains the define, measure, analyse, improve and control (DMAIC) steps. In Section 4, the case study is presented and the problem is contextualised. Section 5 describes how the objective is achieved through the phases of this methodology. In Sections 6 and 7, respectively, the results are discussed, and the managerial implications and the lessons learned are presented. Finally, the main conclusions of the research are highlighted.

2. Food can manufacturing industry and Six Sigma

Six Sigma has been carried out in multiple sectors. We find case studies conducted in automotive industry ( Sambhe and Dalu, 2011 ; Surange, 2015 ; Valles et al. , 2009 ), electronics ( Choi et al. , 2012 ; Patterson et al. , 2005 ), construction ( Negi et al. , 2017 ; Siddiqui et al. , 2016 ; Stewart and Spencer, 2006 ), health care ( Antony et al. , 2018 ; Benedetto, 2003 ), banking ( Sunder, 2016 ; Sunder and Antony, 2015 ), tourism ( Pearlman and Chacko, 2012 ), airlines ( Gibbons et al. , 2012 ), among others. Thus, it was observed that Six Sigma has been widely implemented with different objectives in industrial and services companies ( Raja Sreedharan and Raju, 2016 ; Sunder et al. , 2018 ).

Even in the food can manufacturing sector, which is the one that belongs to the company studied in this article, it has also been applied. For example, Rexam, one of the largest producers in the world (North American sector of this company has 12 plants, South American sector has 10 plants and Europe and Asia have 21 plants), has applied it to improve the quality maintenance processes. Its target has been to gain more production time avoiding unplanned stops or breakdowns and to improve the communication about the maintenance actions, so it is essential to keep equipment in excellent condition ( Nieminen, 2016 ). Moreover, to understand and improve recycling rates, Six Sigma methodology was used in Fayette County, Kentucky, a manufacturing enterprise of beverage cans ( Das and Hughes, 2006 ).

2.1 Food can manufacturing industry peculiarities and the problem of cash

Food can manufacturing industry needs to produce high-quality cans approved for food use. The main raw material is electrolytic tinplate of several thicknesses and it represents between 17% and 41% of the weight of the cans. Tinplate is a flat rolled product, formed by steel (iron and carbon alloy) and covered by a layer of tin. It is an ideal material for manufacturing of metal containers because it combines the mechanical strength and conformability of steel with corrosion resistance of tin. With this material, complementary products are manufactured, e.g. a whole range of plugs, studs, handles, slings, lids and metal cans for food, produced synthetics, oils and derivatives.

Iron and ferrous metals market is the second largest commodity market after crude oil in terms of volumes. There are three key producers of iron who own between 70% and 75% of the market ( DeGroot et al. , 2012 ). This means, an oligopolistic market where large companies have a great negotiation power. The price of iron, necessary for the production of steel products, has suffered different oscillations over the time. Moreover, on certain occasions, this increase in price comes with a decrease of domestic production which makes Europe more dependent on iron importations. In addition, China began to consume more of this material, going from 209 million tons in 2004 to more than 1,000 million tons in 2016. The demand growth and the integration of several global steelmakers resulted in a strong increase of steel price in all its varieties imposed by the large suppliers. Iron price increase has an unavoidable impact in the value chain of companies of the food can manufacturing industry, especially in the supply of materials. At the same time, the most important final clients of these companies are usually large supermarket chains which also have a great power of negotiation. This situation makes companies of this industry vulnerable and they barely negotiate with suppliers and clients the terms of accounts payable and receivables days. So, the financial departments of these companies have a great challenge in cash flow management.

2.2 Six Sigma for solving financial issues

The need of efficient cash flow management has achieved consensus among researchers and practitioners. Under the pecking order model, developed by Myers (1984) and Myers and Majluf (1984) , the availability of internal funds, through cash flow or current profitability, implies that firms have less need to make recourse to external debt, implying a lower debt ratio. Moreover, for a given level of cash flow, the amount of debt will be increasing in the investment being undertaken by the firm ( Benito, 2003 ). This highlights the importance of cash flow balance. Cash flow volatility not only increases the likelihood that a firm will need to access capital markets, it also increases the costs of doing so ( Minton and Schrand, 1999 ; O’Connor Keefe and Yaghoubi, 2016 ). O’Connor Keefe and Yaghoubi (2016) find that cash flow volatility is an important determinant of firm’s debt and debt’s cost. Thus, there is a positive relationship between cash flow volatility and the cost of debt ( Black and Scholes, 1973 ).

A company could survive for a while without achieving profits or even with losses, but it may collapse because of lack of cash even if it has a very positive balance ( Peer and Rosental, 1982 ). Some models have been developed to manage cash flow: mathematical models and cost and time integration models ( Navon, 1996 ). Nevertheless, Six Sigma methodology has been barely applied to the financial company department, especially to solve a deficit cash flow situation, although it can help to improve cash flow, earnings or productivity in using assets ( Foster, 2017 ).

Six Sigma may be used for monitoring accounting processes ( Krehbiel et al. , 2007 ). We found, for example.

A big Portuguese car dealer group successfully used all the stages of a Six-Sigma DMAIC to improve the warranty billing process (paid by Car Brands). It shows that the project allowed car dealership managers to understand that the use of financial metrics did not control compliance standards for Car Brands, in warranty services, or assure a good cash-flow for the car dealers. Necessary changes and new metrics (% time compliance to do the service and bill it, % time compliance reception, % time to find a defective part in an audit) generated time benefits and consequently a more controlled cash flow ( Cunha and Dominguez, 2015 p. 885).

Also related to financial processes, a project was carried out to streamline financial processes (included payroll, purchasing and payable accounts, accounts receivable, monthly reconciliation and budget), reduce cycle time and improve quality and accuracy in a city government ( Furterer, 2016 ). In a logistics project, the methodology Six Sigma approach was used to improve the freight payment process. The results included a reduction in the number of payment processes from 38 to a single one-company process, 30% reduction in labour, 15% reduction in third-party logistics fees and a 25% savings from mode shifts as well as other soft benefits ( Ogg, 2003 ). For the logistics services, in a large consumer electronics company, a project with Six Sigma was conducted to improve payment process, to have a more transparent process with zero failures using Lean Six Sigma methodology ( Blackman et al. , 2013 ; Gutierrez-Gutierrez et al. , 2016 ). They describe the implementation of Six Sigma in the areas of international bank payments, foreign exchange and operating savings gained from simplification and centralisation of the treasury management function. Also, there was increased focus on quality processes within the treasury function and the operating companies, particularly on measuring, improving and controlling the accuracy and completeness of bank data for suppliers. This issue was that rejected payments had to be re-inputted to the netting system in time to complete the process. Motorola originally developed this technique in manufacturing. However, the use of this technique in a finance function was a new venture ( Blackman et al. , 2013 , p. 137). Therefore, Six Sigma can be applied to numerous and different processes that are carried out in a company regardless of the sector in which it operates, and one of those processes could be financial, as the payment process.

In this context, we detailed the great benefits that this business management improvement strategy produced in the financial area of a food can manufacturing company.

3. Research methodology

We use a case study-based methodology to gather the information and explain the implementation of the Six Sigma project that took place in the company. The case study methodology is widely used in Six Sigma research ( Brady and Allen, 2006 ; Thomas et al. , 2016 ). This is a useful and valuable method of research, with distinctive characteristics applicable to different types of research ( Tellis, 1997 ), which facilitates a closer access to the data of a company to research studies. It can also be used in combination with other methods. The food can industry provides a case study context to show the benefits of Six Sigma methodology in a finance department, an area where its use has been very scarce.

In this paper, the case of study is a descriptive, holistic and single case study ( Yin, 1984 ) based on company data for demonstrating the applicability of Six Sigma. There exist different types of case studies. In particular, a descriptive case describes an event or a situation in its real-life context ( Yin, 2003 ) and require that the investigator begins with a descriptive theory or face the possibility that problems will occur during the project ( Tellis, 1997 ). It is also a holistic design of case studies as it is based on a single unit of analysis.

In addition, case studies can involve single or multiple-case designs. Single cases are used to confirm or challenge a theory, or to represent a unique, extreme or revelatory case ( Yin, 1994 ). When a researcher has access to an especial and significant situation previously inaccessible, single case studies become relevant. Each single case study represents a complete study where data have to be gathered usually from different sources and the conclusions are obtained from the analysis of these data ( Tellis, 1997 ).

Even if it is difficult to generalise the results obtained from a single case study, publications on case studies through the use of Six Sigma methodology have been growing. These case studies have contributed to professionals and researchers who have acquired a greater practical knowledge which helps this generalisation to become more consistent ( Antony et al. , 2012a ).

For this reason, it is important to guarantee, as far as possible, the reliability of case studies. Reliability can be reached in different ways in a case study. One of the most important methods is the development of the case study protocol ( Tellis, 1997 ), as Yin (1984) recommended with these four sections: an overview of the project (project objectives, case study issues and topics being investigated); field procedures (credentials and access to sites and sources of information); questions to keep during the project; and guide for the report (outline and format for the narrative) ( Yin, 1994 ).

In this sense, the team studied the problem in a company, gathering some important data and applying a brainstorming process, and drafted a project charter that includes the goal and project statement as well as other project’s features.

The data gathered for the project were analysed using measurement system analysis through the gauge R&R tool, regression analysis, simulation, etc. Also, some graphical analyses such as histogram, Pareto diagram, process map, work flow diagram and flow chart were used for summarizing the data. Finally, from these data, understandable conclusions for the management of the company were reached. All these steps and tools are explained in the following sections.

4. Case study

The case focuses on a large food can manufacturing company in Germany (“CM” name anonymised) with an annual turnover of €800m, about 1,300 employees and a working capital of €22m. It is a true case and, the project was executed by management. The parent company, “US” company (name anonymised), was launching a Six Sigma deployment across all the functions and all the manufacturing sites (with sponsors, black belts, master black belts and with people from the different departments involved in each project). The case explained in this paper, include one of the projects. Concretely, the one to solve the problems of cash.

The main raw material used for the food can manufacturer was electrolytic tinplate of several thicknesses, as explained previously. The price of iron, necessary for the production of steel products, increased sharply in 2003 because of the concentration of operating companies mining. This increase was reflected throughout the value chain resulting in an increase of more than 25% in the price of the electrolytic tinplate used by CM. Moreover, the main suppliers of these raw materials were very large companies. At the same time, the most important final clients were Lidl, Carrefour, Oldenburger, Campbell, Tesco, DIA, Aldi, among others.

Therefore, as mentioned in the introduction, suppliers and clients of CM had a great power of negotiation. The model of the five competitive forces of Porter was one of the management tools of compulsory use in the “US” company, parent company of CM, so the management was very aware of the threat of these forces, in others words, the bargaining power of clients and suppliers that they represent.

The company studied had completed the implementation of the SAP software only two years before, which should ensure better management and control of its payments and collections system. Specifically, the accounting module at that time allowed setting alarms to warn of payment deadlines. However, there was no alarm when payments were made before the scheduled date. This fact, the advance payment of invoices, as it has been proved later, generated economic problems for CM. At the same time, because of the corporate culture, at the close period, normally monthly, the maximum number of payments were made, even if their expiry date were some days later. This fact, along with other reasons specific to the market where the company operated, meant that very often it was necessary to request money from financial institutions to cover the cash deficit. This represented a real problem of liquidity that worried the management, so they decided to intervene.

The implementation of Six Sigma in CM aimed to balance its cash flow. CM suffered from chronic problems of cash flow deficit. The deficit range was from €−7.5m to €−19m. One of the origins of the problem was the need to produce an inventory or stock ( make to inventory ) imposed by the client. Therefore, CM absorbed the effects of the seasonality of its retail sales instead of its clients. To produce inventory, it was necessary for CM to purchase large quantities of electrolyte tinplate and other raw materials in advance to ensure that it had the necessary stock. The payment terms established by tinplate manufacturers did not reflect the seasonality of CM clients. Moreover, the increase of the price of the electrolytic tinplate used by CM by over 25% aggravated the situation. This was the main cause of the negative cash flow periods.

From the corporate point of view, this situation was unacceptable as it directly affected the interests of the shareholders. At the proposal of the group’s European vice president, who had previously worked at the General Electric and had already led a Six Sigma implementation, the board of directors made the decision to implement this strategy in one of their plants to fix the problem. Once the problem was solved effectively, the solution adopted could be applied to other plants of the corporation that suffered similar problems. One of the strengths of Six Sigma is precisely that it analyses problems in depth to solve them in the long term and, its actions could become “transferable” to other similar cases.

Six Sigma is instrumented through the five DMAIC steps methodology and most of its papers apply it in different areas and industries ( Srinivasan et al. , 2016 ). General Electric played a very important role in the development of Six Sigma as a methodology because they add the “define” step at the beginning of the measure, analysis, improve and control process to clarify the problem addressed ( Antony et al. , 2017 ). DMAIC is especially useful when the cause of the problem is not clear ( Snee and Hoerl, 2003 ) because its five steps are a systematic approach in the search for the best solution.

Define : Define the requirements and expectations of the customer, the project boundaries and the process by mapping the business flow.

Measure : Measure the process to satisfy customer’s needs, develop a data collection plan and compare data to determine issues and shortfalls.

Analyse : Analyse the causes of defects, sources of variation, determine the variations in the process and prioritise opportunities for future improvement.

Improve : Improve the process to eliminate variations, develop creative alternatives and implement enhanced plans.

Control : Control process variations to meet customers’ requirements, develop a strategy to monitor and control process and implement the improvements of systems and structures.

In each step, it is important to get useful and reliable information for decision-making ( Karout and Awasthi, 2017 ). In this sense, there are multiple tools and techniques that can be used in each step and represent a vital role in the success of the implementation process. Uluskan (2016) conducted a literature review where he identified the factors most used by the authors according to each step and objective. Some of them are: brainstorming, voice of costumer, process capability, critical to quality (CTQ) tree, flowcharts, value stream maps, box plots, failure mode effects analysis, control charts, cause and effect analysis, Pareto charts, hypothesis testing, ANOVA, etc. In the case studied, DMAIC was applied using different tools and techniques in each step. Table 1 summarises the main tools that were used to achieve the objectives of each phase or step in the case of CM.

5. Implementation of Six Sigma define, measure, analyse, improve and control methodology

The implementation process carried out in the five steps of Six Sigma DMAIC methodology is explained in the following sections.

In the “define” phase, the main objective of the implementation must be defined, as well as the critical project to be developed. The company should eliminate “defect” through the application of Six Sigma and the expected economic impact ( Table 2 ).

CM had suffered significant cash deficit in the previous 18 months. The reason was that the correlation between the company production and the demand level required by customers was needed to be achieved partially through its stock. For CM, this meant having to maintain a stock of products to ensure that customers were guaranteed the number of products they needed. Given that, in the sector, the majority of customers were large stores or commercial chains, their bargaining power was very large and the company worked almost exclusively for them. CM felt obliged to work in that way. This form of fabrication required the purchase of materials in advance, especially if the supplier did not guarantee its supply when CM needed it. This in turn, meant that the payment terms did not reflect the CM seasonality, but rather theirs. As a result, this situation affected the company’s working capital reducing its capacity to return value to CM shareholders.

Therefore, on the one hand, CM usually paid as many invoices as possible, even before the deadline, and, on the other hand, the operation department needed to buy raw materials regardless of whether there was enough cash for payments. In summary, there was not a good coordination between departments.

So, the main objective of implementing Six Sigma in CM was to ensure the optimisation of its accounts payable, especially in critical cash months. This was intended to balance and control the level of cash flow, on the one hand reducing or eliminating the advance payments of invoices (considered as defects in this project); and on the other, negotiating with supplier’s new payment terms more in line with the average of the sector and with the payment terms that CM had agreed with its customers. In this way, by optimising the accounts payable, the company must be able to maintain a stable cash flow that facilitates an improvement of its relations with financial institutions. With this improvement, it was planned to achieve savings of more than €100,000 per year in interest payments.

Y is the main variable that must be monitored, that is, on which it is wanted to act. In our case, it is the working capital, which at that time was €21.6m.

y is the unit to improve to get the Y to improve. We identify the creditors payment days as critical moments, we consider any invoice paid in a less time than expected as a defect.

x are all factors that affect the current payment system and that influence the objective pursued. Therefore, x must be improved to avoid the defect defined.

Necessary data was obtained from the accounting module of the SAP software that the company had installed.

A Six Sigma project requires the identification of the CTQs ( Gijo and Rao, 2005 ). CTQs of the project were identified in the first step of DMAIC ( Figure 1 ). A CTQ is a variable or attribute that directly influences the quality of a process that in this case is of a financial nature and whose ultimate goal is the maximisation of the company’s profit and the value of the shareholder. In the case, the main CTQ, or higher level, of the project was the working capital ( Figure 1 ), hence it is considered as the “Y” of the project and the lowest level CTQ ( y ) was the number of payment days to creditors at critical moments of cash. As shown in the figure, Six Sigma acted in payments made according to the contract, not on the pending payments or invoices not paid.

Finally, process map affected by this project is shown in Figure 2 . It represents in an orderly manner the stages that comprise the supplier–client cycle at process level and at financial level.

5.2 Measure

The definition of the defect was “invoices paid before the expected deadline in critical months of cash”.

The unit to be taken into account for the subsequent analysis was: “supplier invoice”.

Opportunity = 1. This means that there was 1 chance that each invoice that was to be analysed was right or wrong, that is, within or outside of the specifications established for payment in the corresponding contract.

The definition of the standard performance served to facilitate a later repeatability and reproducibility. Ensuring repeatability implies confirming that if the research was repeated, there would be very little variability in the calculations, while reproducibility refers to the variability that could occur because of the change of operator. Measurement system analysis was performed using gauge R&R tool ( Raisinghani et al. , 2005 ; Sunder, 2016 ). For the validation, three CM operators were chosen. They had to analyse 30 invoices that were randomly chosen from SAP data. The three operators reviewed invoices separately, and on two occasions, the payment days of each of the 30 invoices as a measurement for the analysis. The information derived from these checks is shown in Table 3 . If the invoice had been paid within the specified time or later, the invoice passed the analysis (PASS). If, on the contrary, it had been paid before the scheduled date, then it was a defect (FAIL). These two options, PASS and FAIL, appear as attributes in the table. The result gave a gauge of 100% in repeatability and in reproducibility given that there had been no discrepancy between the different measurements made by them. It is observed in the sample analysed that there were more cases of FAIL than PASS (17 out of 30). Therefore, it was found that more invoices were paid in advance, i.e. errors.

The repeatability, reproducibility and accuracy of the measurement system was checked and found a 100% of gauge. Hence, the current measurement system was considered adequate to collect data and did not require further improvement.

5.3 Analyse

In view of the fact that the measurement system was correct, the third phase of DMAIC, the analysis phase, was proceeded. It was intended to answer some questions such as: What are the critical months in terms of cash in CM? Which supplier could be chosen in first place for study? With this supplier, what was the maximum payment term in those months? What was the company capacity to be able to assume these defects or fails? And, what were the sources of variability in the payment system?

To answer the aforementioned questions, in the first place, analysis of the evolution of collections (cash in) and payments (cash out) of prior periods was carried out. It is observed that the critical months were those corresponding to the second quarter (April, May and June) ( Figures 3 and 4 ). Therefore, it meant that it was not possible to maintain payment deadlines to suppliers, especially during those three critical months.

Secondly, to decide which provider to study first, a Pareto diagram was made with raw material suppliers ( Figure 5 ). The reason was that tinplate represented 62.4% of the total payments made to suppliers. The high volume of payments done demonstrated the complexity of the process that they were analysing. It can be observed that the six largest suppliers had represented only 1.4% of all suppliers, but they amounted 73% of the total volume of purchases and CM payments.

Suppliers were ordered according to purchase volume ( Table 4 ). The six most important suppliers had payment terms equal to or greater than 60 days, which was the period that had been estimated as industry average. The four most important suppliers had a payment term of 75 days, while the others shown in Table 4 were small suppliers who charged less than 60 days (the amount of that 16% was about €7.63m). Among them, the seventh one was chosen as target supplier for further analysis. This supplier was the first who had a lower payment term compared with industry average and, it represented a purchase spend of 2.9%.

Thirdly, the frequency in terms of number of invoices and their payment days was also analysed for the target supplier ( Figure 6 ) to detect any abnormality in them. If we analyse them, the target supplier had paid 877 invoices with an average of 37 days and a median of 37 days. Likewise, the evolution of these payment terms for such invoices was analysed noting that the disparity detected did not respond to a specific pattern.

As payments to this supplier only represented part of the problem, the solution required considering more providers and more invoices. It was determined the company capacity to assume these payments in the critical months. SAP data revealed that those critical months before the implementation of Six Sigma, 198 invoices out of 216 were paid in less than 60 days, which represents the number of defects of the project. In terms of the definition of defect of the Six Sigma methodology, this data suppose that the company works with a value of DPMO of 916,667, which means that the company will end up paying 916,667 invoices of each million in 60 days. The short-term capacity, or short-term Six Sigma level ( Zst ), was less than 1. This value of 1 Sigma in the short term is very low as the scale of Six Sigma goes from 0 to 6.

In addition, 8 invoices were found paid in less than 30 days, which represents a DPMO of 37,037 and a Zst of approximately 3.3. We were, therefore, facing a common problem in many companies, but complex.

Finally, in the analysis phase, CM should identify the sources of the payment system variability ( X ’s), that is, the sub processes of the company that affected the objective of the project.

The relationships between variable “current payment term days” and “production” and “cash balance” was investigated to establish a common method for executing payments, and to make decisions that involve all the organisation in the same line. Through a statistical regression, it was found that there was no relationship between these variables. It took 18 months (18 observations) of the 2 years prior to the implementation of the Six Sigma project ( Table 5 ). This result was consistent with the transactional nature of the project. That is, it was demonstrated that statistics was not the best tool.

Considering that statistics did not help to solve the problem, the next action was to carry out multiple simulations, in Excel, of the cash flow with different days of payment to see the effect that these produced on cash balance, especially in the critical months. These simulations were carried out with 8 previously detected suppliers whose payment terms were less than 60 days ( Table 4 ). All simulations were shared to provide transparency to the process. These were the perfect visual tools for all the personnel involved to understand that it was necessary to establish a clear policy and protocol regarding the payment terms to suppliers.

In the company, there were several views of this according to the department to which we refer. For example, from the point of view of different departments, for the purchasing department, a short payment period implied incentives and discounts from suppliers. For financial control, the payment days had a marked influence on cash balance. However, the operations department considered that this data apparently did not affect them. The fragmented vision of the company is a frequent mistake in management. It should be considered that ultimately the damage is global.

On the other hand, employees who were involved throughout CM’s payment system were also sources of variability. Therefore, it can be said that the sources of variability came from both, process that was established to make payments to suppliers and people who made decisions and executed the process. Therefore, it was a problem related to people and internal process of cash control.

5.4 Improvement

In this phase, the company had to set the improvement objectives and establish a new method of operation and tolerances in relation to the suppliers’ payment system. Payment work flow improvement is shown in Figure 7 .

Reduce defects or DPMO value by 80%. This would mean that the number of invoices paid in less than 60 days would be 20, and those paid in less than 30 days would be only 2. The new values of DPMO at 60 days would be 91,667 and at 30 days would be 3,704.

Improve short-term performance capacity (30 days) to 4.18 Sigma, and less than 60 days of 2.85 Sigma. These values would be in line with other competitors in the sector.

Maintain, as a reference, 60 days as payment days after doing benchmarking in industry.

It was decided to change all payment terms to 60 days for the critical months (it was called flexible payment), except for those suppliers who were already paying to longer term. This implied establishing a new “method of operation and tolerances”. To this end, a letter was drafted that was sent to all suppliers whose payment term was less than 60 days, informing them that from then on, it would be 60 days. A personalised communication was issued to each supplier justifying and reasoning the change. Data and conclusions collected from monitoring the Six Sigma method created a clear and transparent understanding for all the parties involved. Data is aseptic and this allows effective and realistic decision-making. Opinions, on the other hand, are completely discarded in the Six Sigma methodology. It is a positive point of the Six Sigma methodology, which proves numerically the decisions and proposals.

The letter sent to suppliers was written impeccably and with data generated by SAP. Most suppliers understood the situation, some even felt identified. Certain suppliers who refused to accept the new conditions, such as our target supplier, were informed of the end of the contractual relationships and CM looked for an alternative. The large suppliers stayed within the established 75-day deadlines. Before this decision, even some of these suppliers lent themselves to collaborate improving the price of raw materials that, shortly before the implementation of the project, had increased significantly.

It was at this point that the Six Sigma team and the management of the company began to understand that they were in front of an integrated supplier–client strategy that reverted to the cash balance company level.

To ensure that payments were made at least to 60 days, the rules in SAP were set according to the instructions received from the purchasing and financial control departments. Any modern enterprise resource planning (ERP) system allows different rules to be accommodated for the same supplier or client. This function was not incorporated when SAP was implemented in CM, so it was necessary to introduce an alarm for certain suppliers that was activated during the critical months to avoid the mistake of paying them in advance. It was necessary, therefore, human intervention in the computer application was required.

5.5 Control

In the last step of DMAIC (control phase), the validation methodology for measuring results was followed. It was necessary to ensure that CM could commit to pay suppliers on time with the new process. The SAP system was reconfigured to operate with the new standards, so changes implemented were made official. Thus, it was possible to confirm the capacity of the process to guarantee the different payments in the agreed terms, that is, without defects (DPMO = 0). This meant that the capacity of the process had actually been improved by increasing the Sigma level to 4.2.

The company acquired the routine of periodically reviewing and analysing its cash balance, especially in the months that had previously proved critical.

As a final result and closure of the project, after several months, the actions taken showed that CM would not need to resort to the bank credit line of €11m needed to absorb the previous cash imbalances caused by inventory rules and seasonality. The financial interest savings were €49,000 in the year of implementation of Six Sigma and €120,000 in the following year, which allowed to achieve the expected economic objective.

6. Discussion

This case study conducted in a large company dedicated to the food can manufacture illustrates how Six Sigma may be implemented with higher or less intensity regardless of the type of process or company. In particular, financial processes carried out in the company can also be the objective of a quality improving project. However, quality improvements in this area have not been widely studied in the previous literature, especially as regards the application of the Six Sigma methodology ( Blackman et al. , 2013 ; Cunha and Dominguez, 2015 ; Furterer, 2016 ; Gutierrez-Gutierrez et al. , 2016 ; Krehbiel et al. , 2007 ; Ogg, 2003 ).

In this work, it can be seen that the usefulness of the Six Sigma methodology in administrative–financial issues can be common in several companies, as it is in this specific case, the cash flow management through payables and receivables days, in line with Black and Scholes (1973) and O’Connor Keefe and Yaghoubi (2016) . In addition, it should be highlighted that the context of the case as occurs in an industry where suppliers and customers have great bargaining power, i.e. the competition is very high. This power can choke companies, even large, especially for the financial costs involved in going to bank financing when necessary.

Well-designed payment and collection processes can guarantee financial stability and balance cash flows in a company to counter suppliers bargaining power. Otherwise, company may lead to continued request for external financing and high interest payments may become a significant problem ( Blackman et al. , 2013 ). Previous studies have shown that companies cash flow has a significant relationship with working capital management ( Appuhami, 2008 ; Chiou et al. , 2006 ; Nazir and Afza, 2008 ; Taleb et al. , 2010 ). This working capital was the variable on which it was intended to act, i.e. “Y”. In turn, according to the industry, there were significant differences in terms of working capital, which, moreover, changes over time. Precisely, competitors may influence these changes ( Filbeck and Kruege, 2005 ). That will imply a necessary control to ensure the permanent balance achieved. SAP software, implemented by CM, should facilitate this control by providing reliable data. In this sense, as benefits were obtained from the implementation of ERP systems in Motorola, SAP in CM also led directly to an improvement in the consistency of the data originating from the manufacturing systems ( Blackman et al. , 2013 ).

Company situation after implementing the Six Sigma reflected economic benefits measured in improvements in the payment terms conditions more in line with competitors, renewal of suppliers that did not accept the new requirements, alarms settings in SAP to avoid mistakes, among others. A special mention is needed regarding the great interest savings achieved in CM with Six Sigma, as it was expected according to Minton and Schrand (1999) and O’Connor Keefe and Yaghoubi (2016) . These results are also consistent with debt being issued in response to the shortfall between cash flow and investment under the pecking order model ( Myers, 1984 ; Myers and Majluf, 1984 ).

7. Managerial implications and lessons learned

In this article, we have described the problem of cash deficit during certain periods in a large German food can manufacturing company. It was solved through the implementation of Six Sigma methodology. The study shows how the project team developed the DMAIC phases and tools in an orderly manner to arrive to the solution. The different phases followed allowed to improve the “working capital”, the CTQ variable.

The success achieved was motivated by the extension of the payment days to suppliers. This led to considerable savings in terms of financial interests. The financial interest savings were €49,000 in the year of implementation of Six Sigma (half year) and €120,000 in the following year. The finance department confirmed that savings obtained were real and, therefore, the value of the Six Sigma methodology is well demonstrated. However, supervision and control of the implemented project is necessary to ensure that the level of defects or invoices paid in advance continues to be zero, that cash flow remain stable and that the “power” of suppliers and clients remains balanced with the company, speaking in terms of the five competitive forces model of Porter.

The lessons learned from the case need to be transferred to the different business units across the organisation, as CM was a subsidiary of US, the parent company.

Transactional business, such as financial services or many of the operations in traditional manufacturing businesses, cannot be met with traditional Six Sigma methodology, as data in most times are qualitative and discrete. In transactional Six Sigma projects, statistics do not really help but the rigour of Six Sigma does. This case is an example of the use of Six Sigma in a transactional process achieving a great reduction of costs.

Nowadays the world is more transactional and to be able to apply Six Sigma in non-productive areas opens a range of possibilities. Moreover, the use of Six Sigma in transactional or commercial situations offers a new dimension in terms of rigour of problem-solving and performance improvement in service sector quality ( Goh, 2002 ).

8. Conclusions

Six Sigma has been widely applied to different industries, especially to eliminate defects, reduce processes variability, improve production quality and increase the satisfaction of the companies’ stakeholders. The main contribution of this article focuses on the application of Six Sigma in the financial area of a company and not in production processes in which it has been widely applied and disseminated in the previous literature. Its objective was to balance company cash flow to improve its working capital. With this study, we intend to provide a solution by shedding light on a crucial problem for companies, i.e. cash flow management by using Six Sigma. With this case, we also demonstrated the applicability of Six Sigma in an area where its use has been scarcely attendant. In addition, it should be noted that the project addressed was transferable to other units of the same company and, therefore, it could be applied in other companies that present the same economic situation regardless of its size, industry etc. Moreover, this problem can be common in other companies, regardless of the sector in which they operate, so study results could be easily extrapolated.

On the other hand, the context was also interesting because the food can industry presents some peculiarities. In this industry, the bargaining power of clients and suppliers is very high and therefore, the situation was more difficult to manage.

This work confirms that the Six Sigma is expanding to other fields. Therefore, a greater use of this methodology in other aspects regarding the financial area of the company could be explored in the future.

Project CTQs

Process map

Cash in (in thousands of euros)

Cash out (in thousands of euros)

Distribution of CM raw material suppliers in purchase volume (in %)

Payment frequency of target supplier invoices

Work flow improvement diagram

Summary of DMAIC in CM

Dependent variable: current payment terms days; adjusted R 2 = 0.1135363; F = 0.96058333 (no sig.)

Source: Own elaboration

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The Impact of Six Sigma on Cost Reduction in the Finance Industry

In today’s competitive business environment, organizations in the finance industry are constantly looking for ways to reduce costs and increase efficiency. Six Sigma, a data-driven methodology for improving process quality and reducing defects, has been used in various industries to achieve these goals. It is also increasingly being applied in the finance industry. Six Sigma can be used to identify areas of inefficiency and waste in the finance industry and implement changes that lead to significant cost savings. In this blog, we will explore the role of Six Sigma in cost reduction in the finance industry and provide real-world examples of Six Sigma in action. We will also discuss best practices for implementing Six Sigma in the finance industry and provide a glimpse into the future of Six Sigma.

Definition of Six Sigma

Six Sigma is a data-driven methodology for improving process quality and reducing defects. It was developed by Motorola in the 1980s and later popularized by GE. Six Sigma is based on the principle that by measuring and analyzing the data of a process, it is possible to identify and eliminate sources of variability and defects, leading to improved process quality and performance. Six Sigma is a heavily structured and disciplined approach that uses a set of tools and techniques, such as statistical process control, process mapping, and design of experiments, to improve the quality of a process and reduce the number of defects to a very low level, typically 3.4 defects per million opportunities or less.

How Six Sigma is Used in the Finance Industry?

Six Sigma is used in the finance industry to improve the quality and efficiency of financial processes. Some of the ways Six Sigma is used in the finance industry include:

• Improving financial forecasting and budgeting processes: Six Sigma can identify and eliminate sources of variability and defects in the financial forecasting and budgeting process, leading to improved accuracy and performance
• Reducing errors and improving the accuracy of financial reporting: Six Sigma can identify and eliminate errors in financial reporting, leading to more accurate and reliable financial reports
• Streamlining and automating financial operations: Six Sigma can identify and eliminate inefficiencies in financial operations, leading to faster and more efficient processing of financial transactions
• Improving customer service and satisfaction: Six Sigma can be used to identify and eliminate sources of variability and defects in the customer service process, leading to improved customer satisfaction
• Detecting and preventing fraud: Six Sigma can identify patterns and anomalies that may indicate fraud, allowing organizations to take proactive measures to prevent it
• Improving risk management: Six Sigma can be used to identify and evaluate potential risks in financial operations and implement controls to mitigate those risks
• Improving compliance processes: Six Sigma can identify and eliminate inefficiencies and errors, leading to improved compliance and reduced risk of penalties or fines
• Optimizing investment portfolio performance: Six Sigma can identify and eliminate sources of variability and defects in investment decision-making processes, leading to improved performance of investment portfolios

Overall, Six Sigma can be used in the finance industry to improve the quality and efficiency of financial processes, reducing costs, increasing revenue, and improving the organization’s overall performance.

Understanding the Role of Six Sigma in Cost Reduction

Understanding the role of Six Sigma in cost reduction is crucial for organizations in the finance industry. Six Sigma is a data-driven methodology that can identify inefficiency and waste in financial processes and implement changes that lead to significant cost savings.

One of the key aspects of Six Sigma is its focus on identifying and eliminating sources of variability and defects in a process. By identifying these sources, organizations can take steps to eliminate them, resulting in improved process performance and reduced costs. Six Sigma tools such as Statistical Process Control (SPC) and Failure Modes and Effects Analysis (FMEA) can identify inefficiency and waste in financial processes, such as errors in financial reporting or inefficiencies in financial operations.

Another aspect of Six Sigma that is useful for cost reduction is its emphasis on process improvement. Six Sigma uses a structured approach called DMAIC (Define, Measure, Analyze, Improve, Control) to improve processes. This approach involves defining the problem, measuring the current performance, analyzing the data to identify the root cause of the problem, improving the process, and implementing controls to ensure the improvement is sustained. By using this approach, organizations can identify opportunities for cost reduction and implement changes that lead to significant cost savings. Furthermore, Six Sigma also can be used to optimize financial operations, for example, by automating manual processes, streamlining workflows, and identifying opportunities for outsourcing. This can reduce labor costs and other expenses.

Overall, Six Sigma can play a vital role in cost reduction in the finance industry by identifying areas of inefficiency and waste, implementing process improvements, and optimizing financial operations. By using Six Sigma to improve financial processes, organizations can reduce costs and improve efficiency, ultimately leading to increased profitability.

Identifying Areas of Cost Inefficiency in the Finance Industry

Identifying areas of cost inefficiency in the finance industry is crucial in reducing costs and improving efficiency. Six Sigma is a powerful methodology that can identify inefficiency and waste in financial processes. Some common areas of cost inefficiency in the finance industry include:

• Manual Processes: Manual processes, such as data entry and manual reconciliation, can be time-consuming and error-prone, leading to increased labor costs and potential errors
• Inefficient Workflows: Inefficient workflows, such as unnecessary steps or delays in processing financial transactions, can lead to increased processing times and increased costs
• Errors in Financial Reporting: Errors in financial reporting, such as incorrect calculations or missing data, can lead to inaccurate financial reports and increased costs associated with correcting the errors
• Lack of Automation: Lack of automation in financial processes, such as manual data entry or manual reconciliation, can lead to increased labor costs and potential errors
• Lack of Process Standardization: Lack of process standardization, such as different departments using different procedures or software, can lead to increased processing times and increased costs
• Inadequate Risk Management: Inadequate risk management, such as not identifying and mitigating potential risks, can lead to increased losses and increased costs
• Inefficient Compliance Processes: Inefficient compliance processes, such as inadequate monitoring or lack of standardization, can lead to increased costs associated with penalties or fines

By using Six Sigma tools such as Statistical Process Control (SPC), Failure Modes and Effects Analysis (FMEA), and Flowcharting, organizations can identify inefficiency and waste in financial processes and take steps to eliminate them. This can lead to significant cost savings and improved efficiency in the finance industry.

You must also read the impact of six sigma in IT process to understand the diversified role of six sigma!

Best Practices for Implementing Six Sigma in Cost Reduction

Implementing Six Sigma in the finance industry to achieve cost reduction is a complex task; it requires a clear strategy and commitment from the organization. Best practices for implementing Six Sigma in cost reduction include:

• Selecting the right projects
• Training employees
• Establishing clear goals and objectives
• Measuring progress
• Maintaining a focus on continuous improvement

By following these best practices, organizations can ensure that they get the most out of their Six Sigma implementation and achieve the desired cost reductions.

Steps for Implementing Six Sigma in the Finance Industry

The following are the steps for implementing Six Sigma in the finance industry:

Define the Project

Identify the specific area of the finance industry that needs improvement and define the problem or opportunity. This could be related to cost reduction, quality, efficiency, or customer satisfaction. Identifying the right project to implement Six Sigma is crucial, and it should be aligned with the company goals, have a clear ROI, and be supported by the top management.

Assemble a Team

Assemble a team of employees from across the organization who will be responsible for implementing Six Sigma in the finance industry. This team should include individuals with various skills, such as process improvement, data analysis, and project management. A Six Sigma team should also have a leader, and a champion, who will drive the project and ensure alignment with the company strategy.

Train the Team

Provide training to the team on Six Sigma methodology and tools, such as DMAIC, SPC, FMEA, and DOE. This will ensure they have the knowledge and skills necessary to implement Six Sigma in the finance industry. The training should be tailored to the team members, their roles, and the project’s goals.

Measure the Current Performance

Collect data on the current performance of the finance industry processes. This could include metrics such as cost, efficiency, and customer satisfaction. Data collection should be done carefully and with a clear data collection plan.

Analyze the Data

Use statistical tools to analyze the data and identify the root cause of the problem or opportunity. The analysis should be done by the team members and reviewed by a statistician to ensure the validity of the results.

Improve the Process

Use Six Sigma tools and techniques to improve the process and eliminate sources of variability and defects. The team should brainstorm and come up with solutions for the identified problems; these solutions should be tested using the “plan-do-check-act” cycle to ensure their effectiveness.

Implement Controls

Implement controls to ensure that the improvements are sustained over time. This could include creating standard operating procedures, monitoring the process, and conducting regular reviews. The implementation of controls should be done by the team members and reviewed by the top management to ensure their alignment with the company strategy.

Continuously Monitor and Improve

Monitor the process and make improvements as needed. Six Sigma is a continuous improvement methodology, and it’s important to monitor the results and make adjustments as necessary. This will ensure that the improvements are sustained and that the process keeps getting better.

It’s important to note that the implementation of Six Sigma should be tailored to the organization’s specific needs, and it may vary depending on the size, culture, and structure of the company. It’s important to communicate the progress to the top management and the stakeholders to ensure their support and alignment with the company strategy.

Case Study of Six Sigma in the Finance Industry

A case study of Six Sigma being used in the finance industry to reduce costs is at a major bank. The bank implemented Six Sigma to improve efficiency and reduce costs in its credit card processor. The bank used Six Sigma’s DMAIC methodology , which stands for Define, Measure, Analyze, Improve, and Control.

The implementation process started with the definition of the project and the selection of the team that would be responsible for the implementation of Six Sigma. Next, the team was trained on Six Sigma methodology and tools, such as DMAIC, SPC, FMEA, and DOE. The bank then measured the current performance of the credit card process by collecting data on the number of errors and the time it took to process a credit card application. Next, the data were analyzed using statistical tools to identify the root cause of the problem.

The team then used Six Sigma tools and techniques to improve the process and eliminate sources of variability and defects. They implemented new procedures and streamlined the process by automating some steps.

Controls were then implemented to ensure that the improvements were sustained over time. This included creating standard operating procedures, monitoring the process, and conducting regular reviews.

As a result of implementing Six Sigma, the bank reduced the number of errors by 50% and the time it took to process a credit card application by 30%. This led to a significant cost reduction and improved customer satisfaction.

In conclusion, this case study shows how Six Sigma can effectively reduce costs in the finance industry. Using Six Sigma’s DMAIC methodology, a team can identify areas of inefficiency and waste, implement process improvements, and optimize financial operations. This leads to a significant reduction in costs, increased efficiency, and improved customer satisfaction. Implementing Six Sigma in the finance industry can also lead to long-term benefits such as improved process performance, increased competitiveness, and better alignment with company strategy. It’s important to note that the implementation of Six Sigma should be tailored to the organization’s specific needs, and it may vary depending on the size, culture, and structure of the company. However, by following best practices and using the right tools, organizations can achieve significant cost savings and improve performance.

In conclusion, implementing Six Sigma in finance can lead to significant cost savings and enhanced performance. By using Six Sigma’s data-driven methodology and tools, organizations can identify areas of inefficiency and waste, implement process improvements, and optimize financial operations. Implementing Six Sigma can also lead to long-term benefits such as improved process performance, increased competitiveness, and better alignment with company strategy. It’s important to note that the implementation of Six Sigma should be tailored to the organization’s specific needs, and it may vary depending on the size, culture, and structure of the company. However, by following best practices and using the right tools, organizations in the finance industry can achieve significant cost savings and improve their performance.

Develop an in-depth understanding of Six Sigma with the Invensis Learning Certification courses. Individuals with Six Sigma certification typically earn higher salaries than those without certification, as they are highly demanding and considered experts in their field. Some of our most common Six Sigma certifications include:

• Lean Six Sigma Yellow Belt Certification
• Lean Six Sigma Green Belt Certification
• Design For Six Sigma Certification
• Lean Six Sigma Black Belt Certification
• RCA Through Six Sigma Certification
• Six Sigma: A data-driven methodology that uses statistical tools to identify and eliminate source variability and defects in processes
• Cost Reduction: Identifying and eliminating unnecessary expenses to reduce costs and increase profitability
• Finance Industry: A sector of the economy that includes financial services and institutions, such as banks, insurance companies, and investment firms
• Root Cause: The underlying cause of a problem or issue; the source of a problem
• Continuous Improvement: The ongoing effort to improve processes and increase efficiency
• Statistical Tools: Methods and techniques used to analyze data and identify patterns and trends
• Standard Operating Procedures (SOPs): A set of instructions that describe how a process should be performed

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Journal of Case Research in Business and Economics

Application of Six-Sigma in finance: a case study

A. Ansari Seattle University

Diane Lockwood Seattle University

Emil Thies Zayed University

Batoul Modarress Zayed University

Jessie Nino Seattle University

In recent years, companies have begun using Six Sigma Methodology to reduce errors, excessive cycle times, inefficient processes, and cost overruns related to financial reporting systems. This paper presents a case study to illustrate the application of Six Sigma Methodology within a finance department. Specifically, the case relates to the Continuing Account Reconciliation Enhancement project undertaken by the finance department of a major U.S. defense contractor. The goal of the project was to streamline and standardize the establishment and maintenance of costing and planning for all business activities within the current financial management process. The Six Sigma implementation resulted in a significant reduction in the average cycle time and cost, per unit of activity, needed to produce the required financial reports.

Key Words: Six Sigma, Process Management, Quality Management , Finance

Application of Six-Sigma, Page 1

INTRODUCTION

In 1987, Motorola developed and organized the Six Sigma process improvement Methodology to achieve “world-class” performance, quality, and total customer satisfaction. Since that time, at least 25% of the Fortune 200, including Motorola, General Electric, Ford, Boeing, Allied Signal, Toyota , Honeywell, Kodak, Raytheon, and Bank of America, to name a few, have implemented a Six Sigma program (Antony et al. 2008, Hammer, 2002). These companies claim that Six Sigma has significantly improved their profitability (Hammer, 2002). For example, in 1998 GE claimed benefits of $1.2 billion and costs of $450 million, for a net benefit of $750 million. The company’s 1999 annual report further claimed a net benefit of more than $2 billion through the elimination of all non–value added activities in all business processes within the company (Lucas, 2002). Similarly, Allied Signal reported that Six Sigma was a major factor in the company’s $1.5 billion in estimated savings (Lucas, 2002). Six Sigma has also enabled Honeywell to reduce the development time required to redesign Web sites by 84% for its specialty materials (Maddox, 2004b). Six Sigma has been defined as a management strategy for improving product and process quality (Hahn et al. 2000, Harry and Schroeder, 2000, Sanders and Hild, 2000). It is also a statistical term used to measure process variations, i.e., how far a given process deviates from perfection, which causes defects. Six Sigma works to systematically manage variation and eliminate defects--or to get them as close to zero as possible (Harrison, 2006). Six Sigma initiatives have typically been implemented on shop floors of manufacturing firms to manage “process variations” (defects or errors), to improve quality and productivity (Revere and Black, 2003), and as a result, to increase the profitability of a company (Aggogeri and Gentili, 2008, Anand et al., 2007, Lucas, 2002). Functional support areas such as finance, accounting, marketing, human resources, procurement, and retail, however, have generally not kept pace with manufacturing in implementing Six Sigma programs. In part, this is due to the rigorous statistical requirements of applications that were considered too difficult to be applied within other functional areas or to predominantly service organizations (Harrison, 2006, Pyzdek, 2003, Watson, 2004). For example, in the areas of finance and accounting, Six Sigma has been used only to monitor and measure the financial impact of a program on the shop floor, in spite of the fact that, according to a 2005 Ernst & Young study (cited in Juras et al., 2007), 14% of public companies have ineffective internal controls, which results in output errors, excessive cycle times, inefficient processes, and cost overruns. This paper presents a case study of Six Sigma as practiced in the finance department within a major division (hereafter referred as IDS) of a leading defense contract manufacturer. Purposes of this paper were to describe the application of the Six Sigma Methodology in streamlining the financial reporting process within the finance division of IDS, to report preliminary findings, and to examine conditions which contributed to the successful implementation. The company’s name and other attributes have been altered for reasons of confidentiality. A detailed review of Six Sigma literature was not deemed necessary for the purpose of this case study since the literature is well known and pervasive, at least within manufacturing operations. First, this study will briefly summarize the five phases of the Six Sigma Methodology. Next, it will briefly describes the application of Six Sigma in various functional areas other than manufacturing operations. Third, the paper presents an overview of the Six

Application of Six-Sigma, Page 2

Sigma initiative at IDS, to provide a context for the case study. Finally, the actual implementation of Six Sigma Methodology in the Account Reconciliation process is discussed along with preliminary performance results.

WHAT IS SIX SIGMA?

Over the past two decades Six Sigma has evolved from a focus on metric to the Methodology level and finally to the design and development of entire Management Systems. As a Metric, when a process is operating at Six Sigma level, it will produce nonconformance (i.e., defects or errors) at a rate of not more than 3.4 defects per one million opportunities. As a Methodology, Six Sigma leads to business process improvement by focusing on understanding and managing customer expectations and requirements (Brewer and Eighme, 2005; Rudisill and Clary, 2004). As a Management System, Six Sigma is used to ensure that critical improvement opportunity efforts developed through the Metrics and Methodology levels are aligned with the firm’s business strategy. The focus of this paper, however, is on the application of Methodology for business process improvement within the financial reporting process. The core of the Six Sigma Methodology level is DMAIC which stands for define, measure, analyze, improve, and control. These are explained in detail in the following sections. In the Define phase, the project team must work closely with stakeholders to clearly define the problem statement, project scope, budget, schedule, and constraints. Understanding customer (internal and external) requirements is the key to achieving the project’s goal. The team has to define problems and goals of the project that are consistent with customer demands and with the firm’s business strategy. Process mapping and “ voice of the customer ” (VOC) tools are iterative techniques recommended as a means of incorporating customer requirements. During the Measure phase, the team creates a value stream mapping (VSM) of the process, capturing the flow of information—where and what information is needed. Then, based on the VSM, the team starts collecting data relevant to measuring the current process performance relative to the project’s goals. The most important activities in this phase are the identification and validation of data accuracy. The most widely used tools are VSM, run charts, brainstorming, balanced scorecards, documentation tagging, data collection check sheets, and decision metrics. During the Analyze phase, the team needs to collect and analyze the data to understand the key process input variables that affect the project’s goal, such as whether time spent on current activities is value added or non–value added. A VMS may be used as part of the overall analysis to generate a list of potential root causes for why the process is not performing as desired. The tools that can be used are process flow chart, value stream mapping, cause-and- effect diagram, Pareto analysis, histograms, control charts, and root cause analysis. During the Improve phase, the team needs to design and conduct experiments (DOE) on a small scale using a formal evaluation process to identify and evaluate optimal or desired alternatives against the established criteria. A list of all possible solutions should be developed, enabling the team to eliminate the root causes of problems. The recommended tools include brainstorming, cost-benefit analysis, priority metrics, failure mode and effect analysis, and process flow diagrams. Finally, during the Control phase, the team should standardize and document the new process to support and sustain desired improvements. To sustain long-term improvements, how the improved process is expected to result in operational and financial improvements (Foster,

Application of Six-Sigma, Page 3

2007) should be transparent to all employees. Tools used include statistical process control charts, flow diagrams, and pareto charts.

APPLICATIONS OF SIX SIGMA

In recent years, a number of manufacturing and service companies have realized that Six Sigma Methodology is flexible enough to be applied throughout all business functions. Examples of Six Sigma applications in different functional areas other than manufacturing operations are discussed next.

Sales and Marketing

In recent years, several companies have considered using Six Sigma to improve marketing processes. For example, the marketing and sales organizations at GE and Dow have been using Six Sigma for new product development and customer support to reduce costs, improve performance, and increase profitability (Maddox, 2004a). Other companies use Six Sigma in marketing and sales as a road map to capture market data and competitive intelligence that will enable them to create products and services that meet customers’ needs (Pestorius, 2007; Rylander and Provost, 2006). Rylander and Provost (2006) suggest that companies should combine Six Sigma Methodology and online market research for better customer service, and Pestorius (2007) noted that Six Sigma could improve sales and marketing processes.

Accounting and Finance

The Six Sigma Methodology has made its way into the accounting function and has contributed to reduced errors in invoice processing, reduction in cycle time, and optimized cash flow (Brewer and Bagranoff, 2004). The accounting department at a healthcare insurance provider, for instance, developed an applied Six Sigma Methodology to improve account withdrawal accuracy. Prior to Six Sigma implementation, rectifying an error in the billing process involved a number of reconciliation checkpoints and manual workflow , which resulted in 60% of customer accounts being charged less than the amount due and about 40% being overcharged. After Six Sigma implementation, the defect rate reached near zero and cycle times were reduced from two weeks to three days (Stober, 2006). The U.S. Coast Guard Finance Center used Six Sigma to create a new standardized process for accounts payable services, which improved customer satisfaction levels (Donnelly, 2007). A number of companies have applied Six Sigma to the finance process to reduce variability in cycle times, error rates, costs, “days to pay” of accounts payable, and improve employees’ productivity ratios (Brewer and Bagranoff, 2004; McInerney, 2006). Other companies have used Six Sigma to reduce the cycle time of the quarterly financial reporting process (Brewer and Eighme, 2005) and to reduce the time needed to close books, reduce variability in financial reporting, improve shareholder value, and increase the accuracy of the finance process (Gupta, 2004). Foster (2007) conducted a longitudinal study comparing the financial performance of companies who had implemented Six Sigma programs with those who did not have such a programs. He found significant effects for those firms using Six Sigma on free cash flow, earnings, and asset turnover. Six Sigma, however, did not appear to affect sales return on assets, return on investment, or firm growth. As a result, Foster (2007) suggested if

Application of Six-Sigma, Page 4

firms want to improve cash flow, earnings, or productivity in using assets, Six Sigma may of use. He also found that the companies with low cash flow and no Six Sigma programs did better than companies using Six Sigma. He suggested that for cash poor firms, Six Sigma may be a drain on resources in that these companies may not have the cash and time necessary to sustain effective Six Sigma results over time. In another industry level analysis, York and Miree (2004) studied the link between quality improvement programs and financial performance. They studied the financial performance of “quality award winning” companies against SIC control groups both before and after winning the award. They found that quality award winning firms had better financial performance both before and after winning quality awards, suggesting that winning the award was a covariate for financial success. Most studies have attempted to assess the impact of Six Sigma on financial performance have occurred at the aggregate industry level of analyses. Very few actual case studies have been reported of the impact of Six Sigma on the finance process itself. That is, how Six Sigma can change the way in which finance conducts its various work activities and the resulting impact has seldom been documented in the literature. This case study attempts to address this gap at the more micro level of within firm process analysis.

SIX SIGMA AT IDS

This case study is based on the information gathered from IDS’s implementation of a companywide Six Sigma initiative. The Six Sigma initiative at IDS was developed by benchmarking the best practices of two other defense contractors, as well as Toyota’s Lean Thinking model, to meet the stringent standard requirements of the Department of Defense. The initiative at IDS received the total commitment of senior executives, a consortium of external Six Sigma experts, and a group of highly trained individuals throughout the company’s business divisions. The Six Sigma team was comprised of a full-time master expert (Master Black Belt -- a common Six Sigma designation for the project leader) and a network of internal experts (Black Belts) working very closely with project managers. The primary goal of the team was to develop an overall Six Sigma strategy consistent with customers’ requirements and the company’s mission statement. The long-term goal of the team was to create special-level project opportunities for the division that could eventually lead to cultural change in the workplace. Forty projects were identified that encompassed the division’s business profile. Using a formal standardized metric, the team prioritized a list of project opportunities in order of their anticipated contribution to the goals of the company. In the next section, the implementation of DMAIC Methodology in one of these 40 projects i.e., the Continuing Account Reconciliation Enhancement (CARE) project is discussed in detail.

Through collaborative efforts with other stakeholders in the project, the team visualized an opportunity to develop and document a standardized process for establishing and maintaining cost and financial planning for all business divisions within its current financial system. The primary stakeholders in this project were from the finance organization, which is responsible for

Application of Six-Sigma, Page 5

Journal of Case Research in Business and Economics generating cost analyses and other financial reports for managements’ consideration. The team had the commitment of the vice president of the division, who sponsored the CARE project. The process entailed identifying undesirable or non–value added activities within the current process, implementing improvements in control systems for achieving sustainability, and delivering measurable results that change the way people think and act. The Six Sigma team began by working with internal customers to define the objectives of the project, including the deliverable, opportunity statement, scope, schedule, budget, and constraints. The team defined the current problem as “the process cannot produce all Financial Planning and Analysis (FP&A) requirements in the most efficient and effective manner.” The primary objective of the project, therefore, was to streamline and document all cost elements in the planning process for the current financial system. To achieve the objective, the Six Sigma team recognized two primary issues. First, there was a need to clarify and simplify the current financial reporting process for internal customers by identifying all non–value added and confusing steps to reduce reporting cycle time and cost. Second, the team envisioned an improved process for both internal (called Firm contracts) and external customers (called Non-Firm) companies who outsourced their financial reporting to IDS. The improved processes were expected to result in more timely, complete, and accurate data for planning.

At this stage, the team conducted value stream mapping analysis to measure the performance of the current reporting process in terms of average hours required to complete the FP&A reports and the subsequent cost of preparing all the reports using activity based costing (ABC) methods. The existing cost and financial planning process was not clearly documented or consistently followed, which often resulted in rework and dual update loops, as shown in Figure 1 (Appendix). These loops inevitably create opportunities for non–value added activities such as errors, excess movement, additional IT training and maintenance costs, inconsistent data, and waiting time to creep into the process. For example, in step 1 on Figure 1, when an internal (Firm) contract was received it was entered into SAP; whereas Non-Firm business was not entered into business planning and simulation (BPS) software until it was required by the five-year plan, resulting in delays and substantial variations in the process. In step 2, when a project is not defined, it costs more and delays the process because the finance department has to request more information (step 3). Only when a project definition was sufficiently established for a Firm for a contract, will a transaction be opened in SAP in step 4. Another problem with the existing process, step 5, was that the financial reporting for project definition was produced with data from the Business Information Warehouse (BIW), which is a combination of databases, and database management tools that are used to support management decision making. The BIW is used in SAP and as well as other applications to support management decision making. In step 6, the project cost plans were not necessarily developed by the finance team for the program (i.e., the Cost Experts), and preparers consequently used a myriad of different financial tools (e.g., Microsoft Excel, BPS, etc.). Next, in step 7, cost element breakouts were defined using input from the various reporting tools. The Non-Firm data was added in BPS as requested by external clients, and Firm data was entered into SAP for the five-year plan FP&A requirements. In step 8, the analysis was prepared along

Application of Six-Sigma, Page 6

Journal of Case Research in Business and Economics with reports and presentations. Finally, in step 9 the FP&A’s were revised to incorporate management change requests and both SAP and BPS data bases were updated as needed. The team found that they were spending, on average 150 hours to produce 10 internal Firm financial statements and 50 hours on 10 outside Non-Firm reports. In summary, the finance department spent a total of 200 hours to generate 20 reports (including the ongoing costs of preparing 12 monthly reports) for an overall cost of $360,000. Using activity based-costing principles the cost of an activity is equal to: Volume x Time x Labor Cost. In this case, this would be equal to 32 reports times 200 hours times a fully burden labor costs for a total of $360,000.

The team began this stage by creating a cause-and-effect diagram, as shown in Figure 2 (Appendix). This tool is used to identify possible root causes of why “the process cannot produce all cost and FP&A requirements in the most efficient and effective manner.” The team identified three major causes and grouped them into the following categories: 1. Lack of complete Firm cost and financial plans 2. Multiple sources of data and databases 3. Lack of complete Non-Firm cost and financial plans Next, the team used these categories as the basis for further detailed analysis to identify the contributing factors for each major cause, as shown in Figure 2. For example, one of the major causes related to the “Lack of Firm complete cost and financial plan” (activity 1) was attributable to: a) incomplete costs being entered into BPS and SAP for all businesses within the division, b) the current project cost plans were defined in various, inconsistent formats at the discretion of the finance managers, c) the cost element plan was not required for contracts to be established in SAP. Furthermore, planning was done using multiple tools and was not copied into or maintained in a common centralized database. Additionally, planning was not consistently performed at the cost-element level because it was not previously considered necessary for FP&A requirements. Hence, the analysis concluded that planning was not required for contracts to be established in SAP, nor was it necessary for FP&A requirements. The team used VSM analysis to recommend the following actions for overall process performance improvement: 1. Identify all business divisions that require a baseline in the current financial database. 2. Establish baseline data by resource, cost element, and time phasing for each project. 3. Identify and eliminate all non–value added activities to improve the response time at all levels of management for a variety of cost analysis and FP&A requirements, including five-year plans, bookings forecasts, sales forecasts, and annual operating plans.

In this stage, the team provided two solutions for implementation by the finance department. First, implement all the actions identified through VSM analysis. Second, redesign the process by following the flow chart shown in Figure 3 (Appendix) which essentially simplified the process by eliminating non-value added steps in the current process.

Application of Six-Sigma, Page 7

In addition, the Six Sigma team recommended that all business divisions be required to implement the following actions to enhance financial reporting capabilities: 1. Develop initial cost-element plans by project for both internal and external contracts.

2. Regularly copy cost plans to various FP&A versions for five-year planning, sales forecasting, and bookings forecasting.

3. Update and maintain cost-element plans as new businesses are identified and funding is received.

4. Update and maintain financial plans.

5. Copy updated financial plans to various FP&A versions accordingly.

After implementing the recommended process changes and actions, the following results were achieved: • Cost-element and financial planning activities for all business divisions were standardized, consistently created and maintained in a centralized database;

• Processes were streamlined, documented, and consistently followed throughout the reporting process;

• Significant reduction in cycle time was achieved for producing the FP&A reports ; specifically, the revised process resulted in 100 hours reduction in cycle time, resulting in cost savings of $130,000 per year or roughly a 64 percent reduction.

A cost savings of $130,000 may not appear to be much considering the cost of Six Sigma implementation, but recall this is only one of forty projects within the finance function. In reality, the reported cost savings of $130,000 a year is actually cost avoidance. That is, in order to increase profitability one must lower cost by, for example, reducing headcount through attrition or by absorbing future increases in the volume of work but with the same labor costs.

The goal of the project was to pull cost elements and financial plans from their various sources, organize them, and combine the information into one comprehensive report for analysis and monthly program presentations. To sustain results, the team standardized, documented, and distributed the new process for the finance department to follow. Additionally, ongoing performance was monitored and became part of the formal performance evaluation process.

SUMMARY AND CONCLUSIONS

In an effort to remain competitive, process improvement has become a strategic imperative for companies. The Six Sigma primarily used on the shop floor has improved firms’ manufacturing processes. In recent years, however, Six Sigma Methodology has proven to be successful in other functional areas, including sales and marketing, supply chain management ,

Application of Six-Sigma, Page 8

accounting, and finance. Current financial reporting procedures of most companies contain numerous errors, excessive cycle times, duplicated data entry, and additional costs due to inefficient processes. Specifically, Six Sigma is one tool that could enable finance departments to streamline their financial reporting process, as described in this case study. The purpose of this paper was to explain how Six Sigma Methodology was applied and implemented within the finance function of a major division within a defense contractor. The Six Sigma DMAIC Methodology was used to streamline the ‘Continuing Account Reconciliation Enhancement’ process. The team followed the five phases of DMAIC in this project and the result was a significant reduction in errors, cycle times, and costs associated with preparing financial reports. The potential impact of cycle time reduction on both internal and external customer satisfaction was not measured in this study but could be incorporated into future research. Lessons learned from this case study are as follows: 1. Lack of standardize, clearly documented, and agreed upon processes inevitability leads to variability which results in confusion and adds labor cost. 2. Maintaining a single centralized database (verse multiple databases) can reduce systems maintenance costs, data duplication, and overall processing cycle times. 3. Six Sigma Methodology can be successfully applied in business functions and services other than manufacturing operations. More in depth case studies are needed in the future to specify the contingent conditions under which Six Sigma may or may not be optimally deployed. The success of Six Sigma Methodology implementation ultimately depends on executives’ continuing commitment to the program. To sustain improvement in the future, the processes and their associated metrics must be simple, transparent, understood, and accepted by all parties involved. Otherwise, none of it will be of any use, as people will not follow them, trust them, or use them.

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Gupta, P. (2004). Six Sigma in finance and accounting: Inside Six Sigma. Quality Digest, http://www.qualitydigest.com/inside/six-sigma-column/six-sigma-finance-and- accounting. Hahn, J. Doganaksoy, N., & Hoerl, R., (2000). The evolution of Six Sigma. Quality Engineering , 12 (3), 317–326. Hammer, M. (2002). Process management and the future of Six Sigma. Sloan Management Review, 43 (2), 26–32. Harrison, J. (2006). Six Sigma vs. lean manufacturing : Which is right for your company? Foundry Management & Technology, 13(7), 31-32. Harry, J. & Schroeder, R., (2000). Six Sigma: The breakthrough management strategy revolutionizing the world’s top corporations. New York: Doubleday. Hsieh, C., Lin, B., & Manduca, B. (2007). Information technology and Six Sigma Implementation. Journal of Computer Information Systems , 47 (4), 1–10. Juras, P., Martin, D., & Aldhizer, G. (2007). Adapting Six Sigma to help tame the SOX 404 compliance beast. Strategic Finance, 88 (9), 33–41. Kleasen, K. & Johnson, J. (2007). Building human resources strategic planning, process and measurement capability: Using Six Sigma as a foundation. Organization Development Journal , 25 (1), 37–41. Lucas, J. (2002). The essential Six Sigma. Quality Progress , 35 (1), 27–31. Maddox, K. (2004a). Marketers embrace Six Sigma strategies. B to B, 89 (10), 1–32. Maddox, K. (2004b). Six Sigma helps marketing improve design, save money. B to B, 89 (13), 3–28. McInerney, D. (2006). Slashing product development time in financial service. iSixSigma Magazine, January 25, 2006 3(2), 1-3. Pestorius, M. (2007). Apply Six Sigma to sales and marketing. Quality Progress , 40 (1), 19–25. Pyzdek, T., (2003). The Six Sigma handbook: A complete guide for green belts, black belts, and managers at all levels. New York: McGraw-Hill. Revere, L. & Black, K. (2003). Integrating Six Sigma with Total Quality Management : A case example for measuring medication errors. Journal of Healthcare Management, 48 (6), 377–391. Rudisill, F. & Clary, D. (2004). The management accountant’s role in Six Sigma. Strategic Finance , 85 (5), 35–39. Rylander, D. & Provost, T. (2006). Improving the odds: Combining Six Sigma and market research for better customer service. SAM Advanced Management Journal, 71 (1), 13–19. Sanders, D. & Hild, R. (2000). Six Sigma on business processes: Common organizational issues. Quality Engineering , 12 (4), 603–610. Stober, M. (2006). Account withdrawal accuracy project example. iSixSigma Magazine, July issue, p. 7. Watson, G. (2004). Six Sigma: Improving a factory’s operations. Manufacturer Monthly, June issue, p. 16. York, K. & Miree, C. (2004). Causation and Covariation: An Empirical Re-examination of the Link between TQM and Financial Performance. Journal of Operations Management . 22(3), 291-311.

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An international bank decided to introduce Six Sigma projects to car loan business strategies significantly grow; the goal was to raise it by 100 percent in the first year, and by another 70 percent in the following year. The bank’s vision was to introduce Six Sigma in financial services. To recognize suitable Six Sigma projects, a team was created by adding members from sales, marketing and operations, which prepared a high-level process map and identified of the sub-processes and the relevant factors influencing car loan business and market share growth. From this pre-analysis, the team identified two Black Belt and two Green Belt projects. The final definition of the six sigma projects for one of the Black Belt projects did not have much scope including only one sub-process – communication with car dealers. After the data analysis it became clear more than half of the car dealers had not repaid the bank during the last couple of months. It was a challenge to include process owner in the project as the car loan business process owner was very doubtful of using Six Sigma in financial services. However, the Black Belt stood out by convincing the car loan business process owner, by not only helping him to understand but to see for himself the benefit of using Six Sigma in financial services. During the Analysis phase, the focus of the team was on two issues. The firs focal point of the team was to study the process of communication between the sales team and the clients. The analysis of the interest rate discovered an even worse issue: Some of the clients did not know the newly reduced interest rate of the bank. A few days after the market research company spoke to the car dealer clients, it was discovered that the number of contacts generated by the former sleeping dealers increased, inspite of the fact that the process had not been touched. T he Six Sigma team came up with solutions to address the main problem root causes of the problem. These solutions required some financial investment. In the Control phase of the project the mechanics was put in place to make sure the process improvements would last. The aim was to depict the monthly actual inactive rate and to take action if it deviated from what it should be. The implementation of a control chart was done to determine whether a deviation was critical or not.

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Six-sigma application in tire-manufacturing company: a case study

• Original Research
• Open access
• Published: 20 September 2017
• Volume 14 , pages 511–520, ( 2018 )

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• Vikash Gupta 1 ,
• Rahul Jain 1 ,
• M. L. Meena 1 &
• G. S. Dangayach 1  

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Globalization, advancement of technologies, and increment in the demand of the customer change the way of doing business in the companies. To overcome these barriers, the six-sigma define–measure–analyze–improve–control (DMAIC) method is most popular and useful. This method helps to trim down the wastes and generating the potential ways of improvement in the process as well as service industries. In the current research, the DMAIC method was used for decreasing the process variations of bead splice causing wastage of material. This six-sigma DMAIC research was initiated by problem identification through voice of customer in the define step. The subsequent step constitutes of gathering the specification data of existing tire bead. This step was followed by the analysis and improvement steps, where the six-sigma quality tools such as cause–effect diagram, statistical process control, and substantial analysis of existing system were implemented for root cause identification and reduction in process variation. The process control charts were used for systematic observation and control the process. Utilizing DMAIC methodology, the standard deviation was decreased from 2.17 to 1.69. The process capability index ( C p ) value was enhanced from 1.65 to 2.95 and the process performance capability index ( C pk ) value was enhanced from 0.94 to 2.66. A DMAIC methodology was established that can play a key role for reducing defects in the tire-manufacturing process in India.

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Introduction

Tire has gone through many stages of evolution, since it was developed first time about 100 years ago. In the beginning, solid rubber tires were used mostly for bicycles and horse-driven carts. First, John Dunlop made a tire which consist a tube mounted on a spoked rim. Then, in 20th century with the arrival of motor vehicles, the use of pneumatic tires was started. The manufacturing process of tires begins with selection of rubber as well as other raw materials including special oils, carbon black, etc. These various raw materials are shaped with a homogenized unique mixture of black color with the help of gum. The mixing process is controlled by the computerized systems to insure uniformity of the raw materials. Furthermore, this mixture is processed into the sidewall, treads, or other parts of the tire. The tire bead wire is used as a reinforcement inside the polymer material of the tire. Bead wire is made up of high carbon steel and the main function of bead is to grasp the tire on the rim. The bead wire of functional tire can work at pressures of 30–35 psi (Palit et al. 2015 ). Bead wires help to transfer the load of vehicle to the tire through the rim. Due to the increase demand of tires, maintaining the quality and reliable performance becomes priority. In addition, there is need for maintaining the quality in the era of technological advancements in design of pneumatic tires.

The companies have to analyze, monitor, and make improvements of their existing manufacturing systems to comply with the market competition. Different companies use different methodologies, approaches, and tools for implementing programs for continuous quality improvement. Besides these, each company certainly required to use a proper selection and combination of different approaches, tools, and techniques in its implementation process (Sokovic et al. 2010 ). Variations are generally observed during the manufacturing process of any product. The prime objective of process management or process capability analysis in any organization is to investigate the variability during the manufacturing process of product (Pearn and Chen 1999 ) which helps organization to monitor and measure the potential of process (Wu et al. 2004 ). The process capability is determined when the process is under statistics control (i.e., the sample mean on X-bar and R-chart lies within three-sigma limits and varies in random manner). Sometimes, a process which is under statistical control may not produce the products within the specifications limits. The reason for this problem is the presence of common cause or this can be happened due to lack of centering of process mean (i.e., there is a significant different between mean value and specified nominal value). Process capability procedure uses control charts to detect the common causes of variation until the process not comes under statistical control (Boyles 1994 ; Chen et al. 2009 ). Process capability indices are used in many areas, i.e., continues measure of improvement, prevention of defects in process or products, to determine directions for improvement, etc. (Kane 1986 ). Process capability indices are measures of the process ability for manufacturing a product that meets specifications. Three basic characteristics (i.e., process yield, process expected loss, and process capability indices) had been widely used in measuring process potential and performance. Among various process, capability indices C p and C pk are easily understood and could be straightforwardly applied to the manufacturing industry (Chen et al. 2001 , 2002 ).

Literature review

The quality improvement tools and total quality management (TQM) are still used in modern industry. However, industries tried to incorporate strategic and financial issues with this kind of initiatives (Cagnazzo and Taticchi 2009 ). After inception of TQM in the early 1980s, six sigma came in picture as an element of TQM that could be seen as current state of evolution in quality management. Six sigma is a strategy that helps to identify and eliminate the defects which leads to customer dissatisfaction in tire industries (Gupta et al. 2012 ). An organization working on direction of implementing six sigma into practice or working to build six-sigma concepts with improvement in process performance and customer satisfaction is considered as six-sigma company (Kabir et al. 2013 ). General Electric and Motorola are two well-known companies who implemented six sigma successfully. For successful implementation of six sigma in organization, one must have to understand the barriers and motivating factors of the six sigma (Hekmatpanah et al. 2008 ). Six sigma aimed to achieve perfection in every single process of a company (Narula and Grover 2015 ). The term six sigma means having less than 3.4 defects per million opportunities (DPMO) or a success rate of 99.9997%. In six sigma, the term sigma used to represent the variation of the process (Antony and Banuelas 2002 ). If an industry works as per the concept of three-sigma levels for quality control, this means a success rate of 93% or 66,800 DPMO. Due to less rejections, the six-sigma method was a very demanding concept for quality control, where many organizations still working on three-sigma concept. In this regard, the six sigma is a methodology that enables the companies to review their existing status and guide them in making improvements by analyzing their status via statistical methods (Erbiyik and Saru 2015 ). For most of the industries, sigma is a level that measures the process improvement and thus can be used to measure the defect rate. Six-sigma define–measure–analysis–improve–control (DMAIC) methodology is a highly disciplined approach that helps industrial world to focus on developing perfect products, process, and services. Six sigma identifies and eliminates defects or failures in product features concerned to the customers that affect processes or performance of system.

The literature reveals that most of the waste in developing countries comes from the automobiles (Rathore et al. 2011 ; Govindan et al. 2016 ), and out of the total automobile waste, most of the waste comes in the form of tires. There are several barriers faced during the remanufacturing these wastes (Govindan et al. 2016 ). Around the world, only few studies have been carried out for the tire industries and these studies are focused on analyzing the profitability of car and truck tire remanufacturing (Lebreton and Tuma 2006 ), system design for tire reworking (Sasikumar et al. 2010 ), value analysis for scrap tires in cement industries (de Souza and Márcio de Almeida 2013 ), and analyzing the factors for end-of-life management (Kannan et al. 2014 ). In addition, some researchers proposed methodologies for improving the process in tire-manufacturing companies out of which few industries implemented lean and six-sigma methodologies (Gupta et al. 2012 , 2013 ; Visakh and Aravind 2014 ; Wojtaszak and Biały 2015 ). Other studies also found implementing just in time (Beard and Butler 2000 ) and Kanban (Mukhopadhyay and Shanker 2005 ).

However, numerous studies are available for process improvement in the automobile industries using various methods (Dangayach and Deshmukh 2001a , b ; Chen et al. 2005 ; Dangayach and Deshmukh 2004a , b , 2005 ; Laosirihongthong and Dangayach 2005a , b ; Sharma et al. 2005 ; Radha Krishna and Dangayach 2007 ; Krishna et al. 2008 ; Cakmakci 2009 ; Prabhushankar et al. 2009 ; Mathur et al. 2011 ; Dhinakaran et al. 2012 ; Dangayach and Bhatt 2013 ; Muruganantham et al. 2013 ; Sharma and Rao 2013 ; Kumar and Kumar 2014 ; Venkatesh et al. 2014 ; Surange 2015 ; Bhat et al. 2016 ; Dangayach et al. 2016 ; Jain et al. 2016 ; Gidwani and Dangayach 2017 ; Meena et al. 2017 ).

A review of the literature shows that the DMAIC method is the superb practice for improving the process capability in automobile industries. Hence, the current research concentrates on the use of DMAIC method aimed for process capability enhancement of the bead splice appearing in a tire-manufacturing industry.

Methodology

In this study, the six-sigma DMAIC phases were applied to enhance the process capability (long term) for bead splice. In every phase of DMAIC method, a compound of both techniques qualitative as well as quantitative was utilized. The DMAIC steps followed in the current research are as follows:

In the first phase, the goals were defined to improve the current process. The most critical goals were acquired using the voice of customer (VOC) method. These goals would be helpful for the betterment of the company. In addition, the goals will direct to bring down the defect level and increase output for a specific process.

Without measuring the performance attributes, the process cannot be improved. Therefore, the ultimate target of measure phase was to establish a good measurement system to measure the process performance. Process capability index C pk was selected to measure the process performance. To compute the process capability index, observations of bead splice variation were taken and MINITAB (version 16.0) was used for analysis.

In the analyze phase, the process was analyzed to identify possible ways of bridging the gaps between the present quality performance of the process and the goal defined. In addition, it was started by determining the existing performance statistics obtained with the help of six-sigma quality tools (process capability index). The further analysis of these data was done for finding root cause of the problem using Ishikawa diagram.

In improvement phase, the alternative ways were searched creatively to do things better and faster at low cost. Different approaches (i.e., project management, other planning and management tools, etc.) were used to establish the new approach and statistical methods were proposed for continuous improvement.

The improvement gained through the previous steps needs to be maintained for continuous success of the organization. Control phase was used to maintain these improvements in process. The new process/improved process was proposed for sustaining the quality control in the organization.

Company profile

Company A was the leading Indian tire manufacturing who started exclusive branded outlets of truck tires. Company started its first manufacturing plant at Perambra, Kerala state of India in the year 1977. Furthermore, the company started its second manufacturing plant in Limda, Gujarat. Company expanded its business and established third plant at Kalamassery, Kerala in year 1995, where premier-type tires are produced. Then, company established a special tubes plant in the year 1996 at Ranjangoan, Maharashtra. Company increased its capacity to produce exclusive radial tires at Limda, Gujarat plant in the year 2000. In year 2004, company initiated production of high-speed rated tubeless radial tires for passenger cars.

Implementation of DMAIC methodology

Problem definition.

In the current research, the problem was identified on the basis of VOC data. The customer complaints on wastage of material due to variation in the bead splice of a particular product were recorded. Table  1 shows the specification of the product (tire).

This wastage increases financial loss to the organization. Therefore, the problem is variations in the bead splice which has to be reduced to minimize the wastages.

Establishment of measures

Initially, the normality test for the collected data was performed and Fig.  1 shows the normal distribution curve for the bead splice data. After passing the normality test, process capability index C pk was calculated to measure the present process performance using the observations of bead splice variation, which is presented in Table  2 .

Normality test of bead splice

These data were used to create an overall baseline for the system to assess its performance based on the necessary improvement areas established in the define phase. Figure  2 shows that the value of process capability index C pk is 0.94 which is less than 1; hence, the process is not capable.

Process capability diagram of bead splice: before improvement

Data analysis

In this phase, the data were analyzed and control charts were constructed. Figure  3 shows the X-bar and R-chart for the existing data. From the figure, it is clear that the few points are outside the lower control limit; however, the process is in statistical control.

X- and R-bar chart of present data

Identification of root cause

The Ishikawa diagram was used for finding the root cause of the problem, which is shown in Fig.  4 . The identified causes of the problem are as follows:

Ishikawa diagram

First cause of the problem was bead splice setting on higher side caused by slippage of bead tape from gripper. The slippage of bead tape from gripper was generated due to worn out of the griper key.

Second cause was variation in the advancer setting caused due to change in skill of worker. This man-to-man variation was caused due to lack of the standard setup guidelines available.

The third cause was related to the frequency of sensor setting. Setting of sensor is required frequently as the former diameter changes. However, due to non-availability of guideline, sensor setting could not change frequently.

The last cause was identified that the workers were not using the measuring tape.

After finding the root causes, the corrective actions were taken, which are presented in Table  3 . After implementing these corrective actions, again observations were taken to measure the process performance.

The collected data are shown in Table  4 and run chart for bead splice variation was drawn for the observations taken before and after corrective actions (Fig.  5 ). From Fig.  5 , it is clear that variability in the process reduced drastically.

Run chart for bead splice

The process capability index was also computed after implementing corrective actions. Figure  6 shows that after improvement in process, the capability index C pk value is improved to 2.66 which shows that process is capable.

Process capability diagram of bead splice: after improvement

To maintain the achieved process performance of the six-sigma quality level, the above four steps of DMAIC methodology must be applied periodically.

Conclusion and Discussion

In this research, DMAIC approach was implemented for process improvement in tire industry. First, process capability index C pk of the current process was computed which was found less than 1. Therefore, to improve the value of process performance, the root causes of problem were determined with the help of cause and effect diagram. In addition, substantial analysis of existing system was done for finding the solution of root cause identified. Finally, in the improve phase, statistical analysis was done for identifying the process capability index value which was improved after taking corrective actions. From outcomes of the study, it can be concluded that process performance of a tire-manufacturing plant can be improved significantly by implementing six-sigma DMAIC methodology.

Cause and effect diagram was also used in an Indian study by Gupta et al. ( 2012 ), although no manufacturing aspects were discussed. One more exploratory research was implemented for finding the enablers for successful implementation of lean tools in radial tire-manufacturing company in India (Gupta et al. 2013 ); however, no manufacturing aspects were discussed in this study also. In the current study, six-sigma DMAIC method is used for improving the process performance.

The main aim of this study was to improve the process capability index of the bead splice, which is achieved by increasing the value of process capability index up to 2.66. This study is based on six-sigma DMAIC quality methodology which provides information about the decision-making power for particular type of problem and the most significant tool for improvement of that type of problem in which data used must come from a stable process (under statistical control: Chen et al. 2017 ).

Six sigma is a standard of measurement of the product or process quality, also having a caliber for improvement in efficiency and excellence of process. The main aim of implementing six-sigma approach is delivering world-class quality standards of product and service while removing all internal as well as external defects at the lowest possible cost. For proper and successful implementation of a six-sigma project, organization must have the required resources, the guidance to the employees by top management, and leadership of top management. The case company follows several quality standards, which have research and development cell, and good coordination system for managing the issue faced on shop floor. Hence, the corrective actions were implemented successfully.

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The corresponding author grateful to the all authors for their suggestions at every stage of this study. The authors would like to thank the anonymous referees for their valuable comments, which has been improved the contents and format of this paper.

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Gupta, V., Jain, R., Meena, M.L. et al. Six-sigma application in tire-manufacturing company: a case study. J Ind Eng Int 14 , 511–520 (2018). https://doi.org/10.1007/s40092-017-0234-6

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• Reducing Software Bug Fix Lead Time From 25 to 15 Days  

Lean Reviews: Stories from Our Customers

Over the past 2 years, over 2,000 learners (2,197 to be exact) have come to DCM to learn more about lean and get certified.  Read (and watch) their reviews to see how our courses have helped them achieve their career goals.

Inhouse Tailored Training for Your Team

We provide training programs that are developed by industry, for industry. Our range of programs can be delivered in a way that suits the needs of your business to offer your employees learning that is accessible and flexible.

We add value to your business by providing specialised, flexible and scalable training that meets your training needs. As your workforce grows and evolves, our globally certified and industry-validated learning solutions can assess, train and qualify your employees. For more information on how we can help please visit the in-house training page .

Membership, Stay Connected. Stay Relevant.

Completing a program is a point-in-time exercise that delivers huge value, but there is a next step to maintaining the currency of your skills in the ever-evolving professional world.

Membership is the next step .

A unique platform, membership is designed to ensure that you are in tune and up-to-date with the latest tools, trends and developments. Being a member provides just-in-time training and continuous professional development, and an exclusive and evolving content library informed by subject matter experts and industry leaders.

Unlock your full learning potential with our free DCM membership! Join our community and access exclusive resources to boost your educational journey.

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Free Bitesize Courses

We have over 100 free courses available to explore, all created by expert trainers, packed full of practical exercises and real-world examples.

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Open Your Brochure

Just to let you know, we are offering €200 credit for the course when you become a member with DCM.

We are very proud of our advisory team in DCM Learning. If you have any questions at all please feel free to ask our team. They will be more than happy to help.

We value your privacy and we will only get in touch about upcoming courses or events that are available to members.

It's so simple... We'll send you the €200 credit and access to the exclusive members area with a full list of the free courses.

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