Amazon’s Six Sigma Model of Total Quality Management

Amazon’s Six Sigma model of total quality management, TQM, refers to the Six Sigma Model of Quality Improvement used by Amazon to streamline the company’s management operations. The Six Sigma Model of Quality Improvement is a new management strategy that organizations have started applying to their business processes to improve performance through cost reduction, product improvement, meeting customer expectations, and increasing revenue.

The six sigma model of total quality management applies a systematic, result-oriented methodology that is tailor-made for use by specific businesses to achieve quality improvements in business process variation, yield, and product cycle time (Magnusson et al. 2003). This systematic process makes use of managerial and statistical tools to achieve continuous quality improvement of organizational processes.

Business organizations like Amazon often apply the Six Sigma model of TQM when they experience performance gaps in processes that have the potential to bring a negative impact on their financial goals or its customers (Shankar, 2009).

Case Study of the Six Sigma Model of Quality Improvement at Amazon

This is the second part of a case study titled “The Application of Six Sigma Methodology in Total Quality Management. A Case Study of Amazon” The introductory part of the case study paper, which discusses the application of the six sigma model of quality improvement at Amazon can be accessed through the link to Amazon’s Management Quality Improvement which is also provided towards the end of this page.

The Six Sigma Model of Total Quality Management-TQM

The term “Sigma” is derived from the Greek letter symbol σ, which denotes the standard deviation of a random variable (McAdam et al., 2004).  Thus, “sigma processes” stems from the understanding that if there exists standard deviations between the processes nearest specification limit and the mean, practically no items will fail to meet specifications (Kwak et al., 2006).

In this regard, upon sampling of large sets of data or over a certain period of time, it is anticipated that about 68.26% of the data will fall within the first standard deviation markers above and below the mean (Tennant, 2002). There exists a 95.44% probability that the same value falls within two standard deviations from the mean, while 99.73% of the data will be covered at three standard deviation levels above and below the mean. Finally 99.994% will fall within four sigma ranges from the mean.

This concept is illustrated in Fig. I below.

 

Quality Improvement Six Sigma Model of Total Quality Management-TQM
Figure 1: Standard Deviation Curve with Mean, Sigma Values and Four Sigma Tolerances

Based on these findings, there exists a strong assurance of acceptable products provided that the process is centred on the target value of being within a range of acceptability; at or outside the four sigma point on the standard deviation distribution curve (Harry et al., 2000).

It is worth noting that whereas organizations can reduce product variation by adjusting certain control factors, there still exists a tendency for processes to drift approximately 1.5 sigma levels on either side of the centre point due to natural, unavoidable sources of variation in processes, components, and materials over time. Therefore, upon factoring this effect of process drift, the true probability of a process with range of acceptability at four-sigma range producing products of acceptable quality actually becomes 98.76% rather than 99.994% (Tennant, 2002).

Therefore, the process capability curve must fit within the range of acceptability, that is, at or beyond six standard deviations in order to reach near-perfect process output. As a quality management metric, the Six Sigma Model of total quality management (TQM) can be used to reduce process output variations to near zero-defects such that it will produce a yield of 99.99966%, which results in a tightening defect rate target of acceptable limits at 3.4 defects per million opportunities (DPMO) or less (Brocke et al., 2010).

DMAIC ToolKit Framework and Six Sigma Methodology

The DMAIC toolkit framework is at the heart of the Six Sigma Model of TQM. DMAIC is an acronym that describes the five phases of the Six Sigma Model implementation process. The letters in the acronym DMAIC stand for Define, Measure, Analyse, Improve, and Control (Shankar, 2009). It is noteworthy that each of the different steps throughout the DMAIC toolkit framework process is required so as to ensure that the organization is correctly applying the principles of Six Sigma Model for total quality management (TQM) best outcomes.

Originally when Motorola developed the DMAIC ToolKit Framework methodology, it had only included four steps within the DMAIC process, that is, Measure, Analyse, Improve and Control. However a fifth phase was introduced by General Electric thus the acronym DMAIC (Eckes, 2000). The DMAIC toolkit framework was expected to provide a closed-loop process that eliminated unnecessary or unproductive steps to the production process so as to ensure there is continuous improvement in production.

Define

The purpose of this phase of the DMAIC toolkit framework is to set up the production process for success and to provide the project team ample time to complete their analysis of what the project should accomplish. It is at this DMAIC toolkit framework stage where project managers agree on existing problems and then assess how current processes fail to meet customers’ needs through Critical-To-Quality (CTQ) or Voice of the Customer.

Measure

At this DMAIC toolkit framework phase, managers measure key aspects of data arising from the product due to production processes. The project team performs the following duties: –

  • Identifying and operationalizing key metrics
  • Developing a data collection plan
  • Conducting a measurement system analysis that helps in verification of data
  • Stratifying data
  • Establishing baseline charts
  • Making charts and graphs that aid in the understanding of the process thus making it easy to identify errors, processing times, and defects.

Analyse

At this phase of the DMAIC toolkit framework, project teams work towards understanding the root causes of the problem. Thus, they gather clues for improvement through first analysing processes to identify gaps using statistical analysis, value-added analysis, or fishbone charts. Once they are through with the data gathering process, they begin a verification process to pinpoint the actual causes of the problem.

Improve

At this phase, the team is now ready to improve the performance of total quality management processes and remove the causes of defect through applying new innovative ideas. The project team could first develop and test a number of solutions for total quality management through piloting or experimenting techniques. The key deliverable at this stage of the process is verifiable improvement of the total quality management model through measurement.

Control

The purpose of this DMAIC toolkit framework phase is to ensure that implementation of the recommendations for improving the total quality management model runs smoothly and that sustained improvement in total quality management processes is realized. The results obtained from the improved TQM process will be flowcharted and compared with results from previous, old TQM methods before they can be approved as the new standard total quality management operation procedure. The project team will continue to track results so as to prevent any “drift” back to previous results. Therefore, they will continue to be proactive in monitoring and addressing any new concerns in processes as part of a long-term process control.

Overview of Amazon Company

Since its inception in 1994, Amazon PLC has expanded from being a bookstore to being the largest online retailer in the world. In 2017, Amazon had a customer base of over 30 million people (Sharma, 2017). As of 2020, Amazon was considered the world’s largest online marketplace in the world with an estimated annual revenue of over $280 billion revenue.

According to Hallam (2014), much of this success can be attributed to the fact that Amazon did not just limit itself to doing classical e-retailing but also developed innovative services like Amazon FireTV (a subscription based web TV based system), Amazon Fresh (an express delivery service that provides customers with access to fresh produce/groceries), Amazon Phone, and the Amazon Web Services (cloud services). These new developments have made Amazon an innovative developer and retailer.

Perhaps the core element that has been driving much of Amazon’s innovation and success is the company’s customer-centric approach to doing business. Additionally, although Amazon’s Six Sigma model of total quality management is rarely mentioned in its reports, the methodology is entrenched in the company culture. In fact, the company is now seen as a perfect example of the power of integrating the Six Sigma model of TQM to Amazon’s processes (Sharma, 2017).

Amazon’s Six Sigma Model of Total Quality Management (TQM)

Much of Amazon’s success began in the year 1999 when the company brought in Jeff Wilke, who had a background in applying the Six Sigma model of total quality management, as Vice President of Operations (Sharma, 2017). At the core of Amazon’s decision to incorporate the Six Sigma model of TQM into its processes is the fact that it wanted to gain a competitive advantage over its competitors. In this regard, the company aimed to:-

  1. Converge Interactivity- Amazon aimed to create an intuitive marketplace for its customers by making it social and interactive with its client base. This way, the company hoped to capture the unique individuality aspects of its clients through personalizing their shopping based on their unique preferences.
  2. Provide customers with options and respond to fluctuating market conditions: – The firm wanted to give its customers access to a wide range of options to choose from thus giving them the option to choose one product over the other and at the lowest possible price.
  3. Respect time and space interdependency- The Company strived to make its services available to its customers all of the time and across the globe (Paris, 2014). In addition, Amazon strived to deliver products to its customers as quickly as possible and at the lowest cost.

Amazon has over the years continued to incorporate the Six Sigma model of total quality management (TQM) in its operations as a way of streamlining its management processes. It has done so by implementing the following into its strategy: –

  1. Operational Excellence– Amazon’s Six Sigma model of total quality management has, over time, become deeply rooted in the company’s culture. It is estimated that around 2000 orders are made every minute via the company’s Amazon PLC website (Sharma, 2017). Hence, it is absolutely crucial that Amazon maintains high operational standards in its processes in order for it to meet its client demands. Amazon has continued to achieve operational excellence through its conscious application of the Six Sigma Model of total quality management to improve customer experience in its processes. The application of Amazon’s Six Sigma Model of total quality management has increased customer satisfaction, efficiency, and productivity across the firm.
  2. Revising its Staffing and Training Policy – Today, Amazon only hires the best and the brightest candidates. New employees are trained on Amazon’s Six Sigma Model of total quality management as part of entrenching the company’s processes improvement initiative.
  3. Directly applying the Six Sigma Model of quality improvement to Amazon’s processes – Amazon uses a number of tools such as Root Cause Analysis and DMAIC toolkit framework to reduce variation in its management processes. Additionally, the firm has continued to cultivate a Kaizen-based company culture to eliminate non-value adding process stages thus reducing wastage.

Other Critical Success Factors (CSFs) Employed by Amazon

There exists a number of other Critical Success Factors that Amazon has employed in its processes as part of its efforts to increase efficiency, improve inventory management, and have a stronger value stream control. These are discussed below.

Top-down Managerial Commitment to Amazon’s Six Sigma Model of TQM

In order to leverage the full potential of Amazon’s Six Sigma Model of total quality management, the company has made the Six Sigma Model of TQM an integral part of its overall business strategy. Therefore, Amazon’s operations have manifested into pragmatic action that is supported by an effective six sigma model of quality improvement. This ambitious integration of Amazon’s Six Sigma Model of total quality management into Amazon’s business strategy gives the company’s TQM model a high chance of survival (Laguna et al., 2004).

The success of Amazon’s Six Sigma Model of total quality management (TQM) is due to Amazon’s top-down management system and its crucial involvement in influencing the attitudes of employees towards management processes quality improvement.

Although Amazon’s top-level management is not always directly involved in the active, day-to-day improvement of the company’s business processes; their role as leaders, project sponsors and advocates has had the ability to influence the desire to pursue quality improvement initiatives into every employee of the company. This has resulted in the successful execution of Amazon’s Six Sigma Model of total quality management in the long-run

Role of the Six Sigma Model of TQM in Influencing Culture Change at Amazon

Based on the observation made by Tennant (2002), the Six Sigma model of total quality management has the ability to affect the entire organization upon its implementation, bringing about a transition from current cultural traits and attributes to a new and different organization culture, values and perspectives.

As organization culture and values are deep-seated factors that may not always be visible, organizations must be aware of the challenges that may arise where people resist changes  introduced by the Six Sigma Model of total quality management that affect organization culture (Brue, 2005).

In order to overcome such resistance to changes in organization culture, Amazon has devised a clear communication plan with effective channels of communication to encourage information sharing by individual employees.

Secondly, Amazon has increased the employee awareness of the organization’s culture by educating its staff on the company’s six sigma model of quality improvement. Moreover, the company has ensured that employees understand the benefits of applying Amazon’s Six Sigma Model of total quality management as a business processes quality improvement strategy (Kwak et al., 2006).

Employee Training on the Six Sigma Model of Quality Improvement at Amazon

Amazon has continued to create comprehensive and formalized training programs for its employees with a special focus on understanding the statistical tools used by Amazon for data analysis and business process performance; the DMAIC toolkit framework model of business process improvement, project management, and quality function deployment; and the Six Sigma Model of total quality management.

These employee training initiatives are based on the understanding that in order for Amazon’s Six Sigma Model of total quality management to succeed, knowledge on the benefits of quality improvement should be diffused throughout the organization so that managers and employees can effectively apply and effectively implement the strategies of Amazon’s Six Sigma Model of total quality management (Kwak et al., 2006).

A unique feature of the education programs on Amazon’s Six Sigma Model of total quality management is the martial-arts inspired, Amazon Black Belt Certification program that provides employee training through hands-on, quality improvement projects.

Amazon’s Customer Centricity

Amazon has over the years paid a close attention to its customers by not only providing them with a wide range of product options on their platform but also responding to their requests promptly. The Six Sigma model of TQM necessitates a formal understanding of customers, whether it is the ultimate customer or the many touch-point customer/supplier relationships within business processes.

Customer centricity can be achieved by understanding what the customer requirements are (spoken and unspoken) as well as the gaps between current and desired performance which are defined by data and facts, baseline and goal performance criteria combined with the Six Sigma model of quality improvement to quantify the criteria (Burton et al., 2005).

It is unlikely that customers will have a detailed understanding of the overall six sigma model of quality improvement and its application at the level of the organization’s processes and products. However, clients care about the quality of products offered by a business entity based on what they intend to do with the product, or whether the services offered will match up to their expectations (Goh, 2002).

Performance Measurement System of Amazon’s Six Sigma Model of TQM

The key purpose of the Six Sigma Model of quality improvement is to base an business management’s quality improvement decisions on the collection of factual data and to quantify the effects of implemented improvements therefore the establishment of an adequate performance measurement system to collect relevant data that is of significant importance (Laguna et al., 2004). Often the difficulty lies in measurement variability as not all measurements can come out with exact results each time.

It is important to understand the extent and causes of such variability to assess if the measurement system is satisfactory in order to achieve stability, repeatability, reproducibility, adequate measurement units, good linearity and consistency of the variance while minimizing bias in the measurement of Six Sigma projects (Joglekar, 2003). Amazon has over time maintained a total quality measurement system that helps it base its decisions on issues that will affect its processes.

Functional Management Support

According to Brink et al. (2008), relationship marketing is a crucial CSF relating to functional management support, which assists in building, developing and preserving effective relationships with customers. In the context of services, relationships is particularly important because it is the means to which customers are retained by forming strong associations that improve customer loyalty (Shajahan, 2006; Berndt et al., 2004). As a result Amazon has continued to embrace relationship marketing as a factor to attain long-term success in future.

Selection of New Projects 

Amazon has continued to be selective of the projects that it intends to undertake often prioritizing the right markets as well as target audiences and making exact deals for deriving positive outcomes (Amazon’s QSPM Matrix). These actions have had a dramatic improvement on the company’s performance as now evidenced by its financial success.

Leadership Practices

Amazon has continued to optimize its existing operational or business process arrangements and adopting holistic approach for promoting innovativeness. Therefore, this has led to an increase in its level of adaptability as well as responsiveness thus raising customer satisfaction level and at the same time loyalty by a considerable extent.

Clear Project Goals

Amazon has been able to attain long-term success by ensuring performance enhancement throughout several business functions and most vitally managing excessive level of costs along with making effective pricing decisions. Additionally, the firm has continued to perform other crucial activities such as ethical sourcing, complying with strict regulatory norms and meeting high standards. These project goals have had an impact in helping the retailer meet all its project goals.

Impact of the Six Sigma Methodology on Amazon’s Success

Amazon’s Six Sigma model of total quality management has had considerable impact on the success of the online retailer. The company has grown from being just an online bookstore at the start of the millennium to being a tech giant. The following are some of the impacts of this methodology on the company: –

Amazon’s Increased Revenue

Amazon’s revenues have continued to grow over the years especially with the introduction of new products. The company revenues have been growing year over year to over 280 billion (Amazon, 2020).

Amazon’s Annual Report Download Pdf Report

Even with the onset of the Corona Virus pandemic, the company has still been making money. According to the company’s financials: -Its revenue for Q1 was $75.452B marking a 26.39%increase year-over-year (Amazon, 2020).

Amazon’s revenue growth from 1997-2020. (Source: Amazon, 2020)

Figure 2: Amazon’s revenue growth from 2006-2020. (Source: Macrotrends.com, 2020)

Much of this revenue increase was attributed to a larger online marketplace presence as more people stayed at home and preferred online shopping to avoid corona virus infection. The usage of its web services, Amazon Web Services (AWS) also saw an increase as people and organizations began using their cloud-based services at a wider scale.

Amazon’s Stock Price

Amazon’s stock has continued to beat expectations over the years. In the past 5 years alone, the company’s stock price has climbed more than 500% (Sun, 2020). The company’s stock price performance has continued to outperform the market and it continues to make fresh highs every year. Analysts have predicted an even more expensive stock price if the company’s performance continues to beat expectations.

Amazon’s stock chart from 1997-2020. (Source: Macrotrends, 2020)

Figure 3: Amazon’s stock chart from 1997-2020. (Source: macrotrends.net, 2020)

Discussion of the Six Sigma Model at Amazon

The Six Sigma model approach continues to help managements in process improvement and paying greater focus to the customer. The methodology has helped companies manage the ever-changing customer needs.

For Amazon, the Six Sigma model of total quality management has not only allowed it win more customers, but also maintain strong client loyalty amongst its customers. The future of Amazon continues to look bright especially with changing times in response to the coronavirus pandemic which has since led people and organizations adhere strictly social distance to guidelines and have since began using e-based platforms to perform their everyday tasks.

One thing is certain, therefore, that the six sigma model of TQM will remain relevant for the years to come and will provide a sense of confidence to companies that they are doing all they can to meet customer demands.

Firms ought to apply the six sigma model of quality improvement in order to align their corporate strategies with operational processes. The application of the Six Sigma model of total quality management will not only help them meet their targets but will also see to it that they address quality concerns and variations in their processes.

In the long-term, this will help them win more customers and evoke a strong sense of loyalty. It is also expected that this strong customer base will translate into additional revenue that the company may put to good use to expand their businesses.

 

Read the introductory part of Amazon’s Quality Improvement Case Study titled The Application of Six Sigma Methodology in Total Quality Management. A Case Study of Amazon”

 

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