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Statistical thinking and its role for industrial engineers and managers in the 21st century. This paper demonstrates the vital linkage between six sigma and statistical thinking. One of the co-authors is currently conducting a survey in the UK organizations.
Statistical thinking and its role for industrial engineers and managers in the 21st century. This paper demonstrates the vital linkage between six sigma and statistical thinking. One of the co-authors is currently conducting a survey in the UK organizations.
Statistical thinking and its role for industrial engineers and managers in the 21st century. This paper demonstrates the vital linkage between six sigma and statistical thinking. One of the co-authors is currently conducting a survey in the UK organizations.
managers in the 21st century Miltiadis Makrymichalos Pefki, Athens, Greece, and Jiju Antony, Frenie Antony and Maneesh Kumar Division of Management, Caledonian Business School, Glasgow Caledonian University, Glasgow, UK Abstract Purpose The purpose of this paper is to demonstrate the vital linkage between six sigma and statistical thinking. The paper also explains the key characteristics required for statistical thinking and some of the common barriers in the implementation of the key principles of statistical thinking. Design/methodology/approach The objectives of the paper have been achieved in several ways. The paper provides the key principles of statistical thinking and then discusses the possible reasons for lack of statistical thinking in modern organizations. The paper then illustrates the linkage between the statistical principles and six sigma. The tools and techniques of six sigma used within statistical thinking are also highlighted in the paper. Findings The key ndings of this work include the relationship between the two key powerful methodologies: six sigma and statistical thinking, reasons for lack of applications of statistical thinking in organizations, the future role of managers and engineers in companies with regard to statistical thinking era and the commonalities in the application of tools and techniques between these two methodologies. Research limitations/implications The paper needs more justication through surveys and case examples and this will be the future step of this study. In fact, one of the co-authors is currently conducting a survey in the UK organizations to investigate the relationship between statistical thinking and six sigma. Practical implications The paper is very practical in nature and it does yield a great value to those people who are currently embarking on six sigma program, especially at senior manager and executive levels. Originality/value Very little is published in the eld of statistical thinking in the UK academic world. In fact, there is a cognitive gap in this eld and this paper certainly forms a good platform for further research that will enable to bridge the gap. Keywords Statistical analysis, Corporate strategy, Quality improvement Paper type General review Introduction: the need for business performance improvement All business activities are subject to variability, and hence uncertainty; consequently, managers have to take decisions in this environment. Managers need to understand the nature of variability and the type of variation (special cause or common cause) in business processes. Making wrong or inappropriate decisions can be costly and waste of effort to organizations. Much about the business world has changed in recent years, largely due to the developments and inuence of information technology and global competition. Although most of the businesses today nd themselves drowning The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at www.emeraldinsight.com/researchregister www.emeraldinsight.com/0268-6902.htm MAJ 20,4 354 Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 354-363 qEmerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592043 in data, many professionals still lack the ability to harness the data for competitive advantage (Hoerl and Snee, 2002). Statistical thinking tells us how to deal with variability, and how to collect and use data so that we can make effective decisions on the system or process we are dealing with everyday. All industrial engineers and managers in the 21st century need to be able to think statistically and to appreciate fundamental statistical tools and techniques for improving quality and overall business performance (John et al., 2001). Statistical thinking Statistical thinking would one day be as necessary for efcient citizenship as the ability to read and write (H G Wells). Statistical thinking should be an integral and important part of any engineers or business managers knowledge. According to the denition published in the Glossary of Terms for Statistical Quality Control (ASQ, 1996), statistical thinking is a philosophy of learning and action based on the following three fundamental principles: . all work occurs in a system of interconnected processes, . variation exists in all processes, and . understanding and reducing variation is the key to success. Statistical thinking can also be dened as thought processes, which recognize that variation is all around us and present in everything we do, all work is a series of interconnected processes, and identifying, characterizing, quantifying, controlling, and reducing variation provide opportunities for improvement (Snee, 1990). This denition, shown schematically in Figure 1, integrates the ideas of processes, variation, analysis, developing knowledge, taking action, and quality improvement. The importance of statistical thinking derives from the fundamental principal of quality put forth by Deming (1986): Reduce variation and you improve quality. Customers of today and tomorrow value products and services that have consistent performance. The consistency in performance can be achieved by systematically eliminating variation in business processes. Figure 1. Statistical thinking in quality improvement Statistical thinking and its role 355 Six sigma Six sigma is a business improvement approach that seeks to nd and eliminate causes of mistakes or defects in business processes (Breyfogle, 1999; Harry and Schroeder, 2000). It is a disciplined method of using extremely rigorous data gathering and statistical analysis to pinpoint sources of errors and ways of eliminating them (Minitab, 2002). Another denition of six sigma is (Linderman et al., 2003): Six Sigma is an organised and systematic method for strategic process improvement and new product and service development that relies on statistical methods and the scientic method to make dramatic reductions in customer dened defect rates. Six sigma is a statistical term that roughly translates to only 3.4 defects or failures or mistakes/errors per million opportunities. The six sigma approach emphasizes in understanding and documenting the business process, developing metrics and hard data, and reducing process variation (Hoerl and Snee, 2002). Six sigma has been quite successful in integrating the simple and powerful statistical tools into the problem-solving methodology DMAIC (dene, measure, analyze, improve, and control). This careful integration of tools with the methods is unique to six sigma (Breyfogle, 1999; Ishikawa, 1985; Kume, 1987, 1985; Hoerl, 1998). Six sigma is viewed as a process performance improvement approach and a measure of process capability. The focus is on creating nancial gains to the bottom-line of the organization. This is one of the facets of six sigma that is not accentuated in TQM. The bottom-line impact is central to the strong and charismatic leadership and the support that has been given to six sigma initiative in an organization. Another key aspect of six sigma is the integration of human and process elements of improvement. Human elements may include teamwork, communication of results, recognition and awards, training, customer focus, etc. and process elements may include process stability, capability, and process characterization and optimization. Linking six sigma and statistical thinking The six sigma approach has a lot in common with the process improvement and problem-solving strategies which utilize statistical thinking. Statistical thinking is fundamental to six sigma and hence it is imperative to begin with the signicance of statistical thinking before six sigma is introduced and developed within organizations. Six sigma differs from other quality improvement approaches in that it focuses on the extensive use of both statistical (e.g. design of experiments, statistical process control, multivariate analysis such as principal components analysis, response surface methods, and so on) and nonstatistical tools (e.g. quality function deployment, pareto analysis, cause-and-effect analysis, afnity diagram, etc.) that are linked and sequenced in a much disciplined way. The goal of standard six sigma statistical training is to give Green Belts and Black Belts an appreciation of statistical thinking and a hands-on introduction to the tools needed for successful projects (Hahn et al., 2001). Broad understanding of statistical thinking at the strategic, managerial, and operational levels is essential to maximise the contribution of statistical thinking to six sigma. It is evident from many research studies that both strategic and managerial aspects of statistical thinking are not yet thought of clearly during the introduction and development of six sigma programs. The successful integration of all the above three aspects of statistical thinking should be the backbone of a successful six sigma initiative. MAJ 20,4 356 Principles of statistical thinking All work is a system of interconnected processes The rst principle of statistical thinking is that all work occurs in a system of interconnected processes. A process is one or more connected activities in which inputs are transformed into outputs for a specic purpose (Hoerl and Snee, 2002). Businesses and other organizations are made up of a collection of processes. Business processes interconnect and interact to form a system that typically provides a product or service for a customer. Dr Juran, one of the quality gurus, pointed out that the source of most problems is in the process we use to do our work. He insisted that the process was to blame and not the people when working on the process or system improvement. Dr Juran makes the point that 85% of the problems are in the process and the remaining 15% are due to the people who operate the process (cited in Hoerl and Snee, 2002). Dr Deming, another quality guru stated that the true gure is more like 96/4, i.e. 96 percent of the problems are in the process or system and the remaining 4 percent are due to the people ( Joiner, 1994). Although there is a difference between the gures provided by the two quality gurus, obviously the vast majority of the problems are in the process/system. Variation exists in all processes The second principle of statistical thinking is that variation exists in all processes. This provides the opportunities for process improvement and hence product quality. Variation is the enemy of quality. Focusing on variation is a key to improve performance and achieve consistency. Of course, in certain situations variation is desirable, such as skills associated with players in a soccer team. It is unintended variation which causes all the problems, which ultimately resulted in increased customer dissatisfaction, undesired product, or service performance, etc. Variation is a fact of life. Variation is all around us. It is present in everything we do, in all the processes operated by us and in all the systems created by us. Variation is the difference between two items/units produced by the same process. Variation creates the need for statistical thinking. If there were no variation, there would be little need to study and use statistical thinking. Understanding, analyzing, quantifying and reducing variation are keys to business success The third principle of statistical thinking is that understanding, analyzing, quantifying, and reducing variation are keys to success of the business. First, variation should be identied, characterized, and quantied in order to understand both the variation and the process that produced it. With this knowledge, we can work to change the process and reduce its variation. The performance of a process is inuenced by its average or centering and the amount of variation around the average performance. For process improvement problems, we need to understand the factors which inuence the average performance and also those factors which inuence variability in process performance. Many managers of today are still concerned about the average process performance and not yet paid much attention to the performance variability. This fundamental problem can be readily rectied by teaching the principles of statistical thinking. Customers of today are more concerned with the consistency of performance and not about how often we can hit the target value of product/service performance. Dr Taguchis quality loss function can be used as a Statistical thinking and its role 357 powerful tool to quantify the loss associated with a product/service when its performance deviates from a desired or target value (Antony and Kaye, 1999). The larger the deviation from target performance, the greater the loss will be. Possible reasons for lack of statistical thinking in todays businesses There are numerous success stories on the use of statistical thinking and methods in problem solving, process improvement, and cost reduction (Britz et al., 1997; Koselka, 1996). However, the approach has been difcult to integrate into the routine business processes of an organization. The lack of broad and sustained use of statistical thinking and methods in many organizations are mainly due to the following fundamental issues. Shift in the organizations priorities Statisticians have historically functioned as problem solvers in manufacturing, research, and development. In exercising this role, they have focused on individual clients rather than on organizations (Snee, 1991). Global competition has forced managers to rethink howorganizations are run and to search for better ways to manage. Problem solving in manufacturing, research, and development, while important, is not seen as particularly relevant to these needs of management (Snee, 1998). Statistics have not been applied for managerial issues Statisticians typically have focused on the technical aspects of statistics. With the exemption of the work of Dr Deming, little energy has been devoted to the use of statistical thinking to better manage the organization and produce better business results. The use of statistical thinking emphasizes the importance of a process focus for analyzing and quantifying process variation and ultimately will lead to bottom line results reduced costs and increased revenues. The new way of utilizing statistics is based on a set of strategies that focus on process improvement, integrating statistical thinking and methods into business processes, developing support and involvement of senior management, and creating the infrastructure and skills that enable the organization to use statistical thinking and methods on a broader scale. Managers view statistics as a tool for re-ghting actions One of the most difcult challenges for every manager is to gure out how to use statistical thinking effectively to help them making effective decisions. However, the problem is that managers treat all the problems as due to special cause variation. When a problem arises, they want to x it as soon as possible in order to deal with their day-to-day job activities. However, what they do not realize is that the majority of the problems are in the system or process which can only be tackled with their full support and approval. The result is that management spends too much time re-ghting, solving the same problem again and again because the system was not changed. These situations are not likely to improve without using statistical thinking strategically. Managers should not only use simple and powerful statistical tools/techniques when the problem arises but also think strategically from the statistical point of view to improve all the business processes through variability reduction programs. Understanding the unique nature of both common and special causes is the key to reducing variation, and reducing variation is the key to improving quality, productivity, and protability. MAJ 20,4 358 Changing the mindset of people in the enterprise Philosopher George Bernard Shawonce noted, If you cant change your mind, you cant change anything. It is clear that managers, quality professionals, technical personnel, and statisticians all have new roles that require new skills. Box (1988) points out that achieving total quality requires skills in the elds of statistics, management, psychology, sociology, and anthropology. All the people in every organization must continue to learn new ways of operating to compete successfully in a rapidly changing world. However, change implies discontinuity and the destruction of familiar structures and relationships. Therefore, change can be resisted because it involves confrontation with the unknown and loss of the familiar (Huczynski and Buchanan, 2001). Inadequate statistical education for business and engineering curricula at higher education institutions Many engineers have not been taught or have been taught poorly the value of statistical ideas and applications. Research has shown that application of statistical tools and techniques by the engineering fraternity in both manufacturing and service industries is limited and when applied they are often performed incorrectly (Antony and Kaye, 1995). In other words there is a cognitive gap in the knowledge of applied statistical methods required by industrial engineers and managers in many modern organizations. The most common remark made by many engineers is I can do the text book and class room examples but I am not comfortable while applying the concepts and principles of this statistical tool/technique in my work area. The main reason identied for that is the lack of statistical education at university level (Antony and Capon, 1999). The courses currently available in engineering and business statistics often tend to concentrate on the theory of probability, probability distributions, and the more mathematical aspects of the subject rather than the techniques which are most practically useful to the engineering and business fraternity (Antony et al., 1997). Fear of statistics by managers A side effect of the inadequate statistical education at university level, as mentioned above, is the fear that managers have when dealing with statistics. Even if they had been taught statistics at the university, it was usually focused on complex maths and formulas rather than the application of statistical tools for problem solving. Usually managers have their rst experience with statistical thinking in a workshop inside the company, applying some tools with the guidance of an expert. Although this is the best learning method to understand and experience statistical thinking (Snee, 1993), if the participant does not have a good knowledge of statistics he will struggle to apply the same principles he learnt to a different problemor in a completely different environment. Only if the content and the delivery method of statistical education will radically change, the future managers overcome their fear for statistics. This fundamental problemcan be tackled by teaching understandable and usable statistical techniques through practical examples and real case studies at the university level (Bendel et al., 1999). New roles for industrial engineers and managers in statistical thinking era Managers should understand that statistical thinking is not just a set of statistical tools Statistical thinking should not be observed as just the use of powerful statistical tools and techniques with little focus at the concept level. Managers should start considering Statistical thinking and its role 359 statistical thinking from a systems perspective, that is, specically developing systems that bring together several statistical tools and other methodologies to perform certain activity (Pfeifer et al., 1998). Managers should start using the available data effectively for making decisions Statistical thinking has its roots in the work of Shewhart. One of the important principles of statistical thinking contributed by Shewhart is rational sub-grouping. The idea is to minimize within subgroup variability and maximize the opportunity to detect variability between subgroups. To truly minimize variability, the sources of variation must be identied and eliminated (or at least reduced). This requires process knowledge which is usually derived from theory and data. Data must be collected in a manner that will enable the measurement of variability in the process. In earlier days, collecting scant data in a haphazard manner was appealing to managers because it created the illusion of quick, inexpensive action. Indeed, the action is quick, but not inexpensive. Quick xes based on incomplete, nonrepresentative data can cause nancial losses resulting from action in the wrong sense. The principle of rational sub-grouping is necessary for reducing variability and is, therefore, a natural part of statistical thinking (Hare et al., 1998). Managers should be able to distinguish common and special cause variation in their core business processes Understanding the difference between common and special cause variation is as important as understanding rational sub-grouping. An illustration often used to show the difference is that common cause variation is the variation that a process would exhibit all the time. It is also referred to as the natural process variation. Common cause variation in many cases may be tackled by fundamentally changing the process or system. This requires action from top management. Some of the fundamental differences between common and special causes of variation are shown in Table I. Special cause variation can be readily identied and can be eliminated by adjusting the process. Special cause variation can often be addressed without spending a great deal of time, effort, or money. Eliminating special causes is really xing problems, or bringing the process back to where it should have been in the rst place. Engineers and managers should develop a new way of thinking The secret in helping engineers and managers understand and use statistical thinking is to recognize that statistical thinking is a mindset a way of thinking, behaving, working, taking action, and interacting with others. Understanding and using statistical thinking requires changing existing mindsets of both engineers and managers. Special cause variation Common cause variation Process can be unpredictable Inherent in the process Often related to a specic event Part of the normal behavior of the process or system Process is not considered to be in a state of statistical control Process is considered to be stable if only common cause variation is present Elimination of special cause variation entails the use of problem-solving strategy Reduction of common cause variation entails the use of process-improvement strategy Table I. Special cause versus common cause variation MAJ 20,4 360 Industrial engineers and managers can effectively develop an understanding of statistics using the learn-use-evaluate cycle (Hare et al., 1998). The cycle begins with dening the statistical thinking mindset. This is followed by conducting a learning workshop in which both industrial engineers and managers can deepen their understanding and knowledge of statistical thinking. Since we learn best by doing, the next step is for them to use statistical thinking concepts and tools in their daily work and keep track of experiences, questions, and concerns. Statistical thinking principles and six sigma tools/techniques Tools and techniques are practical methods, skills, means, or mechanisms that can be applied to particular tasks. A tool is used on its own and has a clear role. Examples of tools include Pareto analysis, control chart, cause and effect analysis, etc. A technique, on the other hand, has a wider application than a tool and is often thought of as a collection of tools. Examples include QFD, Robust design, DOE, SPC, etc. The successful implementation of statistical thinking principles requires stringent application of these tools/techniques. This section is looking at what tools or techniques of six sigma could be employed during the successful implementation of statistical thinking (refer to Table II). Future steps in statistical thinking Statistical thinking and six sigma approach are mainly implemented in the manufacturing industry. Recently, we have witnessed an increasing number of implementations of these approaches in the service industry. The authors believe that statistical thinking and six sigma are applied to all industries irrespective of their nature and size. In the future, statistical thinking together with some basic mathematics, economics, and quantitative and analytical thinking and computing skills provide the foundation for studying more statistically advanced subjects. In disciplines such as marketing, product development, economics, nance, and so on statistical thinking and its elements process, variation, and data are fundamental to deeper understanding and use of associated statistical methods. The potential benets through the systematic utilisation of statistical thinking in every process of the business are guaranteed and will be impressive. Statistical thinking principles Six sigma tools Six sigma techniques All work occurs in a system of interconnected processes Process maps, SIPOC, value stream mapping, afnity diagram, cause and effect analysis QFD, FMEA Variation exists in all processes Histograms, box plots, control charts, run charts, multivari charts Process capability analysis, measurement system analysis Understanding and reducing variation are the keys to success Hypothesis testing, correlation analysis, Pareto analysis, ANOVA, control chart, regression analysis DOE, Taguchi methods, SPC, Shainins variables search method Table II. Six sigma tools/techniques used within statistical thinking Statistical thinking and its role 361 Conclusions Businesses have begun to respond to the new economic era in which we live. This response takes many forms. Much of it is aimed at improving the quality of everything we do. The industrial engineers and managers in the 21st century have two jobs: to do their ordinary work but at the same time continuously improving how they do their work. The attention on improving everything we do has brought with it a renewed emphasis on statistics and in particular on statistical thinking. The improvement activities which derive from statistical thinking are process improvement and problem solving. Problem-solving strategy has been applied in the past but without delivering the expected results. The main reasons identied for that are: statistics was never used before for managerial issues and when they were used they were focused on re-ghting actions. Additionally, there is inadequate statistical education (especially for industrial engineers and managers) resulting in a fear of statistics. Finally, there is always a resistance to change the way people manage processes and they are used to it. Moreover, in order to produce the best results through the use of statistical thinking, managers should also change the way they work, i.e. change of mindset or attitude or new way of thinking toward work activities and daily tasks. They should also understand that statistical thinking is much more than a set of statistical tools and techniques. Primarily, statistical thinking is a philosophy, a concept that variation exists in every process and reducing variation improves product/service quality. It is also important for the managers of the 21st century to be able to distinguish the common and special cause variation, and thereby establishing a greater knowledge of the process. References American Society for Quality (1996), Glossary and Tables for Statistical Quality Control, Statistics Division, Quality Press, Milwaukee, WI. Antony, J. and Capon, N. 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