TWO DAY PROGRAMME ON

LEAN
&
SIX SIGMA
MANUFACTURING
PRACTICES
Faculty: Prof. A. Rajagopal,
HEAD, SQC&OR UNIT
INDIAN STATISTICAL INSTITUTE
Ph: 0422-2441192

1
STATISTICS AS A KEY TECHNOLOGY IS NOT MERELY AN
OPERATIONAL TOOL FOR PROFITABLE BUSINESS. BUT AS A
POWERFUL ACCELERATOR AND CATALYST FOR ECONOMIC
DEVELOPMENT
PROF: P.C.MAHALANOBIS
2
 ABOUT THE INSTITUTE
PIONEERING QUALITY MOVEMENT IN INDIA BY
SQC & OR DIVISION OF ISI
70 years of existence as a centre of excellence promoting
statistics as a key technology.
 One of the world’s leading organization recognized as an
Institute of National Importance.
 At the Initiation of founder Prof. P.C.Mahalanobis, Dr.Walter
Shewart visited the institute in 1947 to introduce SQC in the
industries particularly in the textile sector in a significant way.
Successfully demonstrated SQC / SPC not only as operational
tool for profitable business but also as a powerful accelerator
and catalyst for economic development.
3
Every year about 100 organizations are benefited in following
this approach in different sector, Private – Public – Government,
around the country. Over 10,000 projects has been carried out so
far.
 Now Coimbatore Unit is introducing this approach to small
scale sector also based on the widespread experience in the
application of Textile sector.
Objective:
 Improve Quality
 Reduce Waste / Rework / Rejection
 Increase Productivity
 Best utilization of resources including time.
4
The value of
Time

5
 When
, You
Time”, Don’t
Work
You C “On
an Ex
“TIME plain,
IS NO LONG LIFE WITHOUT QUALITY
T GOO (OR)
D
QUALITY WITH GIVEN LIFE

6
TO BE THE FIRST AND FAST PLAYER
Price

Willingness to
pay

Quality

PPM

Competitive
Edge

Time
7
TODAY’S BUSINESS ISSUES:
Quality and price are two axis of business so long. The Third axis
emerged as -"THE TIME"- the factor taking leading position in business.
“SPEED" is the need of hour. “To be FAST and to be FIRST has become the
challenge".

Conventional Business approach is moving towards higher production

(Quantity), which some time affects the Quality and may force to sell in
discounts or as seconds, and to carry out "High Inventories“

“Quality in time" at the "least cost" is the mission statement, moving

ahead in this changing environment.

"Statistical Methodologies" -that study the uncertainties, Analytical

approach that economies the cost and which minimizes the waiting time/ idle
time through such “No investment”- “No cost tools” enabled to maximize the
return on valued resources.

8
TAKING OF THE BLINDERS…

“In strategy it is important to see distant things as if

they were close and to take a distanced view of close
things”

Miyamoto Musashi
The Book of Five Rings

9
 COMPETITIVE REQUIRES INNOVATION

No existing market share is safe today, no product life is

indefinite. Not only is this true for high technology, but it is
also true for all consumer products. Competition will tear
away market niches and technology advantages from the
established business through the weapon of innovation.
Companies will become merely a shadow of their ‘glory
days’ or will vanish if they do not find a way to re-create
their market success through a steady stream of innovative
products and customer – oriented solutions.

10
 INNOVATING FOR COMPETITIVENESS
Innovation requires the planned abandonment of established,
familiar, customary or comfortable ways of working… whether in
product or services, competencies or human relationships or the
organisation itself.
Business
Assessment

Break through
Planning System

Strategic Change
Decision Management
Making

Conclusion: Innovation means that you must be organized to allow

constant change.
11
maNaGemeNT
of
Time

12
TIME CRESIS MANAGEMENT:
Crisis involves two aspects. The cresis created by factors within one’s
control and such crisis can be avoided. Then those crisis created by factor’s
beyond one’s control and have to be faced.
Major cresis can be avoid, if we act upon a situation at the right time.
More often than not, there are two tendencies that present us from acting at the
right time.
 Postponement of the unpleasant
Non recognition of the problem

PROCRASTINATION CREATES CRESIS:

The tendency to do what ii easy, trouble free, and pleasant and leave for the
future the issues that are difficult, Thus the difficult issues keeps piling up. They
become irritants. We do not want this because it remind us of our inefficiency
and incapacity to face unpleasant issues. A thing undone always remain with us.

13
DO THE UNPLEASANT FIRST:
We can not expect every thing in life to be pleasant. Like the two
sides of the coin, the unpleasant always goes with the pleasant.

The one who does not postpone making a decision, right or wrong,
to fulfill a responsibility, that person alone can be successful.

Postponing something because it is unpleasant is wrong. It has the

potential to create a crisis and when it occurs, we will be inadequately
equipped to face it.

RECOGNIZE THE PROBLEM AND ACT:

ACT
We get used to the problem so much so chronically, that we don’t recognize
it as a problem. When there is a problem, we tend to say, “There is no
problem, Everything will be alright”. But it will not be all right.

14
MURPHY’S LAW:
What can go wrong, will go wrong. The possibility of something
going wrong is much greater than its going right. One can act upon a
problem, however small it is, only when the problem is first accepted. Action
presupposes a decision, a will, and the will can exists, only when there is
recognition.

KARMA:
“Everything will be all right if my karma is good”. Karma does not
work that way, the theory of karma is not fatalism. It does not justify passing
the buck. It pins down the responsibility upon us.

so accept problem as it occurs.

15
DEALING WITH THE ISSUES:
For any business man, interference from competitor will be a problem.
This is not created by him. This has to be faced. This requires inner strength. It is
like learning to drive a car. The instruction cannot reproduce all possible traffic
situations. The learner has to deal with particular situation as they occur.

EVERY EFFECT IS A CALCULATED RISK:

When you make a business projection for the following year, factors
like potential demand, availability of raw material, changes in tax structure,
shrikes are taken in to account.
Since every intelligent effort involves a calculated risk, only two results
can be expected from every effort – Success to different degree – Failure to
different degree.
With every failure, a person seems to become more and more frightened
and a time comes when are is not able to act at all. So it is important that we are
prepared for failure in our effort, because success may not always come. Our
power are limited, and there are factors beyond our control.

16
ACCEPT LIMITATIONS:
To be for failure, it is necessary to recognize one’s limitations. Our
knowledge is limited and so we can not avoid many situations from occurring-
otherwise we could avoid all accidents.

sometime we have the knowledge but our power is limited and we

feel helpless . If you permit yourself to be depressed for reasons you seem to
have no control over, you become helpless and the outside factors will make
you more and more inefficient and ineffective.

Depression is a reaction. In action, you have freedom to exercise your

will.

Acceptance of facts is a precondition to an action, Non –acceptance is

an ideal condition for reaction – in fact Non- acceptance itself is a reaction. Non
–acceptance does not alter the facts- the reaction creates a chain of reactions.
SO ACCEPT THE FACTS AND KEEP ACTION.

17
TIME PRIORITIZATION:
Water, Tumbler, pebbles, sand, stones, grane . All can be accommodated, if it is
planned in priority while filling the tumbler without pilferage. We can find time for
anything, provided we have passion for it.
GOALS MUST BE CLEAR:
Nobody works for failure. You do not have to make an effort to achieve a
failure. Sometimes people invest in failing business for tax purposes. It is not a real failure.
It is a calculated achievement.
CORPORATE MANAGER:
BE CLEAR ABOUT GOAL.
What is to be accomplished. What is expected out of me. I must also know, what
I expect of those who works for me.
PRIORITIZING GOALS:
With out conflict
Based on resources (Time, Manpower, resources)
Be concern with immediate plan without getting bogged down by the scale of
the project.
18
“What ever a leader does, other people do. The very thing.
What ever the upholds as authority, an ordinary person follows
that”.

- BHAGAVATGITA.

KRISHNA TO ARUGUNA:

If you runaway from this battle field, all others will also
follow you. If you fail to do what is to be done, others will also do
exactly that, because you are leader, whether you like it or not.

- Set our Example.

19
uNdersTaNdiNG
leaN

20
 Understanding lean

Lean:
A systematic approach to identifying and eliminating waste
{non- value-added activities) through continuous improvement in pursuit
of perfection by flowing the product at the pull of the customer.
Lean champion:
Subject matter expert in the tools of lean typically chosen to lead
lean training, lean projects, and lean transformation.
Lean enterprise:
Any organization that continually strives to eliminate waste,
reduce costs, and improve quality, on-time delivery, and service levels.

21
Lean production:
The opposite of mass production.
Muda:

A Japanese word, usually translated as “waste”, that refers to

those elements of production that do not add value to the product.
Takt Time:

The available production time divided by the rate of customer

demand. Takt time sets the pace of production to math the rate of
customer demand and becomes the heartbeat of any lean system.

22
example for takt time
Time Available Minutes
Shift 480
Breaks -10
Lunch -20
5S -10
Meetings -5
Changeover -220
Maintenance -5
Other -0
Total minutes 210
Total seconds 12600
Min 900
Demand Avg 1080
Max 1800
Takt time (Min) = 12600
900
Takt time (Avg) = 12600
1080
Takt time (Max) = 12600
1800
Min 14.0
Takt time Avg 11.7
Max 7.0
23
 BusiNess
Process
imProvemeNT
sysTem
24
 groUnd rUles

• Everyone participates
• Anything is open to question
• Look at issues from larger perspective
• Ideas from anyone is respected
• Talk to the ideas generated ; not the person
• No complaining – unless accompanied with
solution and action plan
• No blaming

25
 leadership Vision

• “Quality . . . is the next opportunity for our Company to

set itself apart from its competitors . . .
... Dramatically improved Quality will increase employee
and customer satisfaction, will improve share and
profitability, and will enhance our reputation.

... “[Six Sigma] is the most important training

thing we have ever had. It’s better than going
to Harvard Business School.”
J.F. Welch

26
definition of a process

A Process Is A Collection Of
Activities That Takes One Or
More Kinds Of Input And
Creates Output That Is Of
Value To The Customer

27
 processes

All activity takes place in terms of a process.

The quality of the process determines the quality of the output.
Shocking lessons
#1: Most people do not think in terms of processes. They
would rather think terms of isolated events.
#2: When convinced of
the value of thinking in
terms of processes, most
people still don’t think in
terms of processes

#3:The word “process”

generates fear and
resistance.

6 28
 strategic focUs

“Voice Of The Customer” “Voice Of The Shareholder” Other Stakeholders

(Surveys) (Profitability Analysis)  Employees
 Lenders
 Regulators

Stakeholder
Customer Requirements Prioritization Requirements

Internal Processes And Output Measures

Core Processes
And Output Measures

Key Subprocesses And Input Measures

Supplier
Quality

Black Belt Projects

29
 leVels of process

Core Process Equip. Order/ Pick-Up & Customer

Billing
(Level I) Mgmt. Leasing Delivery Service

CSR
Customer Branch Servicer CSR Verifies CSR
Subprocesses Qualifies CSR Enters
Calls For Schedules Fixes Customer Completes
(Level 2) Customers’ Case In CIS
Repair Repair Problem Satisfaction Case
Needs

Subprocesses Through
Microprocesses
(Level 3 And Below)

30
 3 dimensions of process

The Dimensions Of Process Focus

Im D
m
ig

pr MA
n
xS
Fo sig

ov IC
Si
De

em
r

en
n
sig

t
De

Management
Process Management

31
 Bpms

What is BPMS?

A nine step methodology designed to create

ongoing accountability for managing entire
cross-functional processes to satisfy process
goals

32
 Bpms
Why BPMS ?

• Proven methodology to optimize process

performance

• Establishes value-added metrics to assess

process performance – takes the guesswork out
of how a process is performing

33
 Bpms
•Assess your previous mission/goals Process Mission Statement

A.
Purpose:

•Evaluate if your process boundaries have changed  Importance:

Boundaries: Step 1: Create Process Mission
•Adjust and make corrections Process Goals:

Process Management System

Process Owner
Beginning Point End Point

 Step 2:Document Process

B. •Assess current CTQs and if they reflect process
S I P O C

•Assess if any new CTQs or measures are needed

•Adjust and make corrections Verbatim
Key
Issue
Process
Requirement
Step 3: Document Customer and
 Process Requirements

Operational Definitions
CTQ
Proc.
Rqmt Output Proc Input
Data Owner
Definition Step 4:Identify Output and
     
Unit
How Many
DPU Process Measures


C. •Develop should be process map 

Process Management System

Step 5: Build Process

•Create a simple data collection plan Management System
Clarify
Data
Operational
Definitions Step 6 Establish Data Collection

Validate Data
Plan
System Display

80

•Assess if current dashboards are representative 70

60
UCL
Step 7: Process Performance
D. 
50

40

•Collect Data and populate dashboards 30

20

10
29-May
LCL
Monitoring
15-May

12-Jun

26-Jun

18-Sep
•Assess performance against targets 10-Jul
0

21-Aug
24-Jul
1-May

4-Sep
17-Apr
3-Apr

•Adjust and make corrections 25

20
15

Step 8: Develop Dashboards with

Nov

10 $1,600
5
Sep

0 $1,400
Jul
Jul

Jan

Jun

Oct

Nov

Dec
Feb

Mar

May

Sep
Apr

Aug

$1,200
May

10


9 $1,000

Spec Limits and Targets

Mar

8
7 $800
Jan

0 5 10 15 6
5 $600
4
Nov

3 $400
Sep

2
$200
Jul

1
May

0
Jul
Feb

Mar
Jan

Sep

Dec
Oct
Jun
May

Nov
Apr

Aug

$0
Mar

Jul
Mar
Jan

May

Sep

Nov
Jan

0 5 10 15

•Develop actions to address variation Trend Problem Step 9: Identify Improvement

E.  Chart Pareto
Opportunities
34
Root Corrective
Cause Actions
step-1 : create process mission

 Define process specific mission.

 Mission statement of the plant

 List out preliminary process goals

 Measurable type
 Attribute type

35
step-2 : define & docUment the process

 Use SIPOC to define the process.

Ready for all plants

 Use flow charts to create & validate process maps.

Yet to be incorporated

Flowcharts are to be drawn on four different perspectives on a process

What one think the process is.

What the process really is.

What the process could be.

What the process should be.

36
 Use SIPOC to define the process.
Starting at the Top
Key business activities can be defined at different levels of the organization:

New Product Demand Demand Customer

Level 1 development Fulfillment Service
Generation

Level 2 Ordering
Producing Picking Shipping
Materials

Level 3 Mixing Filling Sealing Packing

Level 1 = highest -level view of work in the organization

Level 2 = work that flows across several departments or within a n entire
department or work area
Level 3 = a detailed view of of a particular process

30 37
 Which Flowcharting Technique
Should I use?

Basic Activity Deployment

Flowchart Flowchart Flowchart
 To identify the major  To display the  To help highlight
steps of the process complexity and handoff areas in
and where it begins decision points of a processes between
and ends process people or functions

 To illustrate where in  To identify rework  To clarify roles and

the process you will loops and bottlenecks indicate dependencies
collect data

35 38
 Types of Flowcharts Useful
for Understanding Process Flow
Activity Deployment
flowcharts flowcharts
Sales Technical Shipping Coordinator

31 39
 Activity Flowcharts
Hotel Check-out Process Process Name

1 2 YES
Is there 3
Approach front desk Wait
a line?
Clear
direction of
Activity flowcharts are Numbered
NO flow (top to
bottom or
4
specific about what happens steps Step up to desk left to right)

in a process. They often 5

Clerk NO
capture decision points, available? 6
Wait
Key of symbols
rework loops, complexity, YES

etc. Start/End
7
Give room number
Consistent
level of
detail
Action/Task
8
Check bill

Decision

9
Charges NO 10
Sequence correct? Correct charges

YES

11
Clear starting
Pay bill and ending
Date of creation points
or update &
name of creator
40
 deployment flowcharts
People or groups
Deployment flowcharts show listed across the top Invoicing Process

the detailed steps in a Sales Billing Shipping Customer Elapsed

Time

process and which people Steps listed in 1

Delivers goods
Time flows
column of person or down the
or groups are involved in group doing step or 2 8 page
in charge Notifies sales of Receives

each step. They are completed delivery delivery

5 days

particularly useful in
9
3 Records receipt and
Sends invoice to claims against this
customer delivery

processes that involve the 10 days

flow of information
4 10
Notifies billing Receives invoice
of invoice

between people or 5
Files invoice
11
Checks invoice
against receipt

functions, as they help 12

Pays bill

highlight handoff areas. 6

Receives and
records payment
Horizontal lines
7
clearly identify
Reviews weekly
report of overdue
handoffs
accounts

41
 ValUe
- added and
- added steps
nonValUe
Value-Added Step:
 Customers are willing to pay for it.
 It physically changes the product.
 It’s done right the first time.
Nonvalue -Added Step:
 Is not essential to produce output.
 Does not add value to the output.
Includes:
• Defects, errors, omissions.
• Preparation/setup, control/inspection.
• Over- production, processing,
inventory.
43
• Transporting, motion, waiting, delays. 42
 How to Create
an Opportunity Flowchart
Value- Added Steps Nonvalue - Added Steps
 Divide page into
Loop
two sections
Yes

•Value-added
Yes
section smaller
Loop
than cost-added-
only section No No

 Time flows down the

page
 Only join two Value- Loop Yes

Added steps with an

No
arrow if there are no
Nonvalue - Added steps
in between

47 43
 step-3 : docUment cUstomer & process
reqUirements

 Types of customers.

 Translating VOC into specific requirements.

this is the place for defining the QFD

44
 Voc process

1. 2. 3. 4. 5.
Identify Collect and Analyze data Translate Set
customers analyze to generate the customer specifications
and determine reactive a key list language for CTQs
what you need system data of customer into CTQs
to know then fill gaps needs in
with proactive their language
approaches

Outcomes:
 A list of customers and customer segments
 Identification of relevant reactive and proactive sources
of data
 Verbal or numerical data that identify customer needs
Defined Critical-to- Quality requirements (CTQ)
 Specifications for each CTQ
7 45
 what is critical to qUality
What is Critical to Quality (CTQ)?
 What a customer tells us they want from our product / service or process output
 CTQs are rendered from Voice of Customer (VOC)
 CTQs must be specific
 CTQs must be measurable
 CTQs must be actionable

✔ CTQs always have three elements:

✦ CTQ Category (also known as an Output Characteristic or CTQ name, e.g. Claims
Processing Timeliness)
✦ Customer Specification (customer’s requirement of our product/ service or process,
e.g. “30”)
✦ Unit of Measure (how output is quantified by the customer, e.g. “Days”)

CTQ Example: Claims Processing Timeliness: 30 Days

Category Specification Unit of Measure

46
 example: ctq tree
One of 7 Management Tools – Tree diagram

Need Drivers CTQs

Low qualification of operator

Operation Easy to setup

(training / documentation)

Digital Control
MTBF
Ease of Operation Maintenance
Maintenance
and Maintenance Cost
Down time

Modification Mistake Proofing and

Documentation
Standardization Minimum special tools /
equipment required

General Specific

Hard to measure Easy to measure

23 47
 estaBlishing a performance standard

• A performance standard translates customer needs into

quantified requirements for our product or process
Product/
Process % Trained
Characteristic

No. Trained against no.

Customer Measure identified for training in a
Need chosen subject
CTQ
Better Target
95 %
Throughput

Specification/
Tolerance 90%
Limit(s)

Defect Definition Below 90%

48
 Bpms
Step 3 – Document Customer/Process Requirements VOC Guidelines

Internal Voice of Customer

After Clarifying, the
CTQ
Customer Sample CTQ’s
Key Issue(s) Is... Requirements
Customers
Reliability
Leadership Durability
Process Owners Accuracy
Stakeholders Timeliness
Failure Recovery
External Efficiency
Customers Cost Savings
Easy to Use
Clients Quick Response
Consumers
Regulators
Brokers

VOC Translation Process

Your Voice of Customer

Key Issues CTQ’s
Outputs Customer Requirements
Outputs of your Customer needs are Clarification of the Defined as customer Key issues are
process are designed stated in the language customer’s language performance translated into
to satisfy customer of the customer identifies the key requirements of a customer
needs profitably issues product or service requirements 49
Step 3 – Document Customer/Process Requirements VOC Guidelines

After Clarifying, the Customer

Voice of Customer CTQ
Key Issue(s) Is... Requirements

50
 Bpms
Step 4 – Identify Output/Process Measures: Measurement Matrix Guidelines
CTQ Tree Template
CTQ Specific CTQ Minimum Maximum Output Process Input
Key Issue
Customer Target Lower Specification Upper Specification
Measurements Measurements Measurements
Requirement Limit (LSL) Limit (USL)

Process

Output Variables (Y’s)

Input Variables
(X’s)
Process Variables (X’s)

Measurement Criteria
•The measure must be important
•The measure must be easy to understand
•The measure is sensitive to the right things and insensitive to other things
•The measure promotes appropriate analysis/action
•The measure must be easy to get

51
 ctq template
CTQ Tree Template
CTQ Specific CTQ Minimum Maximum Output Process Input
Key Issue
Customer Target Lower Specification Upper Specification
Measurements Measurements Measurements
Requirement Limit (LSL) Limit (USL)

52
 Bpms
Step 5 – Build Process Mgmt. System

Objectives: Consolidate work performed in steps 1-5 onto

one concise page which captures the essence of your
process. Establish process specs/targets, control limits,
and response plan for out-of-control/under-performing
metrics.
Why Is This Important?: A process management system
allows a process owner to quickly respond to performance
trends. It is an enabler for process optimization.
Tools : Control Plan

53
sTeP-5 : Build Process maNaGemeNT sysTem

 Measures & Targets.

 Monitoring System.

 Contingency Plan.

54
 Process Management System
Process Description: Process Customer : Customer Requirements : Outcome Quality Indicators :

Process Flow Chart Checking

Measure Remarks
Target SOP/SOC/
LSL Checking Contingency Document
Desc. USL Item Frequency Resp. plan no.
Y1
Y2
Y2.1
X1
X2
X2.1

55
 BPms
Step 6 – Establish Data Collection Plan Guidelines
Reporting
Frequency
of Measures Sampling Plan
(Daily, Upper Lower Operation Green Yellow Red (what, where,
Weekly, Spec Spec Definition of Calculation/ Calculation/ Calculation/ Data Display when, how
Measures Monthly) Limit Limit Metric Definition Definition Definition Data Type Owner Method many)

Data Collection Roadmap

Develop Continue
Plan for Data
Operational Begin Data Improving
Consistency
Definitions & Collection Measurement
& Stability
Procedures Consistency
• Operational Definitions • Creating Monitoring
• Validating Measurement Systems
• Collecting Data • Training Data Collectors Procedures

• Sampling • Making Data Collection Activities “Error Proof”

56
 daTa collecTioN PlaN

Reporting
Frequency
of Measures Sampling Plan
(Daily, Upper Lower Operation Green Yellow Red (what, where,
Weekly, Spec Spec Definition of Calculation/ Calculation/ Calculation/ Data Display when, how
Measures Monthly) Limit Limit Metric Definition Definition Definition Data Type Owner Method many)

57
 BPms
Step 6 – Establish Data Collection Plan Guidelines
Decision to Decision to
Collect New Data Sample
• Is there existing data to help with problem • It is often impractical or too costly to collect all
solving mission? of the data
• Is current data enough? • Sound conclusions can often be drawn from a
• Does the current data meet the process needs? relatively small amount of data

• Is the team just using data that is available? One BB to finalise sampling strategy

Validating Data Collection

Measurement Systems Considerations
• Data is only as good as the measurement system • Can the new data be generated through systems
used to gather it. Measurement systems must be modifications?
validated to ensure data is free from errors
• Can data collection be integrated into existing
• There are a variety of techniques to validate data work processes?
– consult a Quality representative or refer to your
• Is all data being collected necessary to calculate
six sigma training
process measures?
• Review the measurement system periodically to
• Can some data collection efforts be curtailed
ensure consistency and stability over time
because they don’t add value? 58
 BPms

Step 7 – Process Performance Monitoring Guidelines

Variation Over A Variation Over
Type of Data
Period of Time Time
Pareto Diagram Run Charts
Discrete Bar Charts Control Charts
Pie Charts
Histograms Run Charts
Continuous Box Plots Control Charts
Multi-Vari Charts

Upper
Control
Purpose of Control Charts Limit

Measurement
•Determine whether or not process variation is due to
special cause or common cause variation Average

•Determine whether the process is in control or out of

control Lower
Control
Limit
Time

59
 Process PerformaNce moNiToriNG

 All Repetitive activities of a process have a certain amount

of fluctuation .

 Input, Process & Output measures will fluctuate.

 Variation is the ‘Voice of the Process’ – Learn to Listen to it

and Understand it.

60
 BPms
Step 7 – Process Performance Monitoring Charts

Defective Rate, DPMO, and Sigma for Purchase Order Request Process
Individuals Control Chart for Weekly Requistion Sigma

700000 4.50 4.0

4.00
3.0SL=3.939
600000
3.50
500000
3.00
Defective Rate/DPMO

400000 2.50
Sigma

300000 2.00 3.5

X=3.448
1.50
Sigma

200000
1.00
100000
0.50

0 0.00
9/28/0 10/5/0 10/19/ 10/26/ 11/9/0 11/16/ 11/30/ 12/7/0 12/14/ 12/28/ 1/18/0 1/25/0 2/15/0 2/22/0 3/15/0 3/29/0
1/4/02 2/1/02 3/8/02
1 1 01 01 1 01 01 1 01 01 2 2 2 2 2 2 3.0
-3.0SL=2.958
Defectives per Million 63809 34574 38271 30000 11842 16666 14814 17613 16000 25000 31147 22413 71429 30833 0 0 0 0 0
DPMO 70899 46099 43896 34921 24123 17490 16461 10101 8889 34722 38251 23946 7937 33333 0 0 0 0 0
Sigma 2.97 3.18 3.21 3.31 3.48 3.61 3.63 3.82 3.87 3.32 3.27 3.48 3.91 3.33 0 10 20
Week Ending Week of
Defectives per Million DPMO Sigma Measurement 61
 BPms

Step 8 – Develop Dashboards Guidelines

Dashboard Creation Roadmap

Identify Universe
Key Considerations of Potential Measures
• How do you want the information
displayed?
• To what level do you want to drill Narrow List of
down in the information? Measures
• How might you want to segment
the information for making critical
decisions?
Data Collection
• Who should access the
information?
• What supporting information do
you want to see? Determine Measures
• Lower level dashboards should w/Best Relationship
roll-up to higher level dashboards. to CTQ’s

Finalize Dashboard

62
 sTeP 9 – oPeraTe Process maNaGemeNT sysTem &
ideNTify
imProvemeNT oPPorTuNiTies

External Continue
Environmental Control
Information Actions

Yes

No
Plan/Implement
Dashboard Process Satisfied with Improvement
Indicators Indicators? Actions to
Review Correct

Internal
Environmental QC/SGA/
Information Quick Hit/
No Action Troubleshoot DMADV
DMAIC
Identify Problem Process Improvement Process Redesign
Diagnose Root Cause (process not capable
Remedy Cause of performing to
standards)
63
 Process Management Chart
Process Name : Process Owner : Date :
Process Map Monitoring Response Plan
Target Data Process
USL collection Immediate Improvement
Measures LSL method Control/Fix projects

64
 ProjecT y aliGNmeNT
Key output metrics that are
Business Big Y’s aligned with strategic
goals/objectives of the
business. Big Y’s provide a
direct measure of business
performance.
Process Y’s
Y
PROCESS Y
Key output metrics that
Y summarize process
Management Y performance

Project Y
Key project metric defined
from the customer’s
perspective
X1 X2 X3

Any parameters that

influence the Y
65
 ProjecT ideNTificaTioN

Customer wants and

needs should drive
our actions!

 Who’s the customer?  What’s the business

 What does he/she strategy?
think is critical to  Who in the business
quality? holds a stake in this?
 Who speaks for the  Who can help define
customer? the issues?
 What are the
processes involved?
66
 a GreaT ProjecT should…

 Be clearly bound with defined goals

If it looks too big, it is
 Be aligned with Strategic Business Objectives and
initiatives
It enables full support of business
 Should have high Impact the Bottom Line
 Be felt by the customer
There should be a significant impact
 Work with other projects for combined effect
Global business initiatives
 Show improvement that is locally actionable
 Relate to your day job
 Focus on key CTQ’s
67
 selecTiNG The riGhT ProjecTs

Delivered CTQ Importance

High
Impact

Medium
Impact

Low
Impact
Six issues in selecting a project:
Low Medium High
 Process
Performance
 Feasibility (Is it doable?)
 Measurable impact
 Potential for improvement
 Resource support within the organization
 Project interactions

Top priorities based on impact and performance:

strategic issues 68
 ProjecT PrioriTizaTioN maTrix

The desirability of a project increases as you move from the

lower right to the upper left, and as the circle gets larger

Hi Probability

In
of Success

cr
ea
IMPACT

sin
Low

g
Med

D
es
Med

ira
bi
lit
y
Low Hi

Low Med Hi EFFORT

69
 ProjecT selecTioN
• Success Factors
– Project scope is manageable
– Project has identifiable defect
– Project has identifiable impact
– Adequate buy-in from key stakeholders
• To Be Successful…
– Set up project charter and have it reviewed
– Measure where defects occur in the process
– Assess and quantify potential impact up front
– Perform stakeholder analysis
• Common Pitfalls
– Inadequately resourcing the project
– Duplicating another project
– Losing project momentum
– Picking the easy Y, not the critical Y
• Avoiding Pitfalls
– Identify and get committed resources up front
– Research the project database and translate from other projects where
possible
– Set up milestones and a communications plan 70
 a Good ProjecT

A good project:
– Problem and Goal Statements are clearly stated
– Defect and opportunity definition is clearly understood
– Does not presuppose a solution
– Clearly relates to customers and their requirements
– Aligns to the business strategy
– Uses the tools effectively
– Is data driven

71
 a Bad ProjecT

A bad project:
– Is not focused–scope is too broad
– Is not clear on what you are trying to fix
– May be an already-known solution mandated without
proper investigation
– Is difficult to see linkage to customer needs
– Is not clearly aligned with business objectives
– Has little or no use of tools
– Is anecdotal–not data driven

72
 ProjecT charTeriNG

A Charter:
– Clarifies what is expected of the team
– Keeps the team focused
– Keeps the team aligned with organizational priorities
– Transfers the project from the Champion to the
improvement team

73
 five major elemeNTs of a charTer

1. Business Case
Explanation of why to do the project
2. Problem and Goal Statements
Description of the problem/opportunity and objective in
clear, concise, measurable terms
3. Project Scope
Process dimensions, available resources
4. Milestones
Key steps and dates to achieve goal
5. Roles
People, expectations, responsibilities
74
 The Goal sTaTemeNT

The Goal Statement then defines the

team’s improvement objective Specific
Definition of the improvement the Measurable
team is seeking to accomplish?
Starts with a verb (reduce, eliminate,
control, increase)
Attainable
Tends to start broadly - eventually
should include measurable target and Relevant
completion date
Must not assign blame, presume Time Bound
cause, or prescribe solution!
75
 8 sTePs To BiNd a ProjecT

1. Identify the customer

– Who receives the process output?
(May be an internal or external customer)
2. Define customer expectations and needs
– Ask the customer
– Think like the customer
– Rank or prioritize the expectations
3. Clearly specify your deliverables tied to those expectations
– What are the process outputs? (tangible and intangible
deliverables)
– Rank or prioritize the deliverables
– Rank your confidence in meeting each deliverable
76
 8 sTePs To BiNd a ProjecT

1. Identify CTQ’s for those deliverables

– What are the specific, measurable attributes that are most
critical in the deliverables?
– Select those attributes that have the greatest impact on
customer satisfaction

2. Map your process

– Map the process as it works today (as is)
– Map the informal processes, even if there is no formal,
uniform process in use

3. Determine where in the process the CTQ’s can be

most seriously affected
– Use a detailed flowchart
– Estimate which steps contain the most variability
77
 8 sTePs To BiNd a ProjecT

1. Evaluate which CTQ’s have the greatest opportunity

for improvement
– Consider available resources
– Compare variation in the processes with the various
CTQ’s
– Emphasize process steps which are under the control of
the team conducting the project
2. Define the project to improve the CTQ’s you have
selected
– Define the defect to be attacked

78
 ProjecT selecTioN WorkshoP

2 Ways :

• Top- down method – More effective & High impact projects.

(Through CTQ selection workshop)

• Bottom-up method – Low impact & High numbers of projects

79
 cTQ selecTioN WorkshoP

List down the Strategic Business Objectives

List down the Key Focus Areas to achieve the SBOs
Prioritize the KFAs
List down the core processes
List the impact of the core processes on the KFAs
Rank and prioritize the core processes
List down the performance indicators for the prioritized
list of core processes
Rank and Prioritize the CTQs
Generate projects list from CTQs
80
 cTQ selecTioN WorkshoP
Step 1 - List down the Strategic Business

Objectives & Key focus areas of your

plant/deptt.
Sl.No SBO’s KFAs Wtg

81
 cTQ selecTioN WorkshoP
Step 2 Core Processes of Each Function
Impact of Core Processes on each KFA
Wtg
Sl # Key Focus Areas Core Process 1 Core Process 2 Core Process 3 Core Process 4 Core Process 5 Core Process 6 Core Process 7 Core Process 8 Core Process 9 Core Process 10

of KFAs

Process Absolute Importance (Column Sum

: Sum of scores the process wrt SO)

Process Relative Importance (Realative

Importance = Absolute Importance / Total)
List your process and What level of impact it will have on the KFA , 1=Low, 3=Medium, 9=High

82
 cTQ selecTioN WorkshoP
Step3 Priority of CTQs
Root Causes
Is Problem Data
Already Known
Sl Impact on Translation Because of Availability
Process CTQs / Metrics As Is Must Be Gap Ease to Implement with Priority
# Margins Opportunity Variability? on Xs and
Confidence?
(Yes / No) Y
(Yes / No)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1=Low 1=High 1=Low
3=Low to Medium 3 = Medium to High 3=Low to Medium Priority =
5=Medium 5=Medium 5=Medium Gap*Ease*Impact*Translation
7=Medium to High 7=Low to Medium 7=Medium to High
9=High 9=Low 9=High

83
 cTQ selecTioN WorkshoP
Step-4 :

List of projects

84
 froNT liNe ProjecT selecTioN

ISSUES OF COST REDUCTION & CUSTOMER SATISFACTION OBTAINED FROM EACH DEPTT THROUGH
BRAINSTORMING
I S SUES S EL EC TED F ROM OPERATI ONS
FORMAT No.: …
DEPTT./PROCESS/FUNCTION: AREA OWNER:
SAVING AVAILA PART OF
POTENTIAL PER BILITY ISSUES WHICH OTHER THE
ISSUES ANNUM (IN OF MAY BE FUNCTIONS EXISTING REMARKS
LAKH OF DATA IMPACTED CONCERNED PROJEC
RUPEES) (Y/N) T (Y/N)

85
 ThiNkiNG liNe for ProjecT selecTioN

Thinking line for Front-line project selection :

• Cost saving projects

• Cost avoidance projects
• Reliability/Process improvement projects
• Quality/ Customer/Competitor oriented projects.
• Ease of operation projects.
• Knowledge management projects.
• Material handling projects.

86
ProducTioN
cycle Time

87
PAY BACK WORKING:
Existing Contribution in Rs. 4744113.0
Contribution after Modernization in Rs. 6859511.0
Increase in Contribution in Rs. 2115398.0
Pay Back Period in Months 31.0

ADVANTAGES:
High Speed machines *High end product * High end market
Higher productivity (Present 35.91 gss is chronic problem in 80’s)
Cost reduction due to productivity utilization increase and way the minimization.
Turnover increase with investment “State of the art Technology ”
Branded Product
Lead Supplier
Fast Pay Back and first Player
88
Note:

The Financial Overheads need to be taken after contribution,

with present worth of future returns.

EARLIER INTERNAL SCHEME:

Only replacement Horizontal not vertically

No increase turnover even after modernization

Substance medium product in medium market

Space kept idle

89
 ProducTioN cycle Time
Time gap between the starting time to produce a completed item (or
Batch, ready for dispatch) till the next item (or Batch ) is started. The total time is
production cycle time.

coNTiNuous imProvemeNT:

Continuous Improvement View of Losses of Deviations from Normal

90
 loss fUnction :

L(y) =K(y-m)2 = Taguchi Loss Function

Where,
y = the value of the quality characteristic for a particular item of
product or service,

m = the nominal value for the quality characteristic, and

k = a constant, A/d2

A = the loss (cost) of exceeding specification limits (e.g., the

cost to scrap a unit of output), and

d = the allowable tolerance from the nominal value that is used

to determine specification limits.
91
 illUstration:

The Continuous definition of quality, return to the sample of the production of

stainless steel ball bearings, Every millimeter higher or lower than 25mm causes
a loss that can be expressed by the following Taguchi Loss function:

L(y) = K(y-m)2 = (A/d2)(y-m)2 = (Rs.1.00/ 52) (y-25mm)2

= (0.04)(y- 25mm)2

if 20 y  30,

L(y) = Rs.1.00, if y < 20 or y > 30

Table shows the values of L(y) for the Quality characteristic (diameter of ball
bearings)

92
orderiNG Time, seTuP
Time, oPTimum
ProducTioN QuaNTiTy

93
 inVentory optimiZation
and material reqUirements planning

The basic principle of inventory optimization and

materials management is to minimize the competing costs of
having either too little or too much in inventories of raw
material, work in process, or finished goods.

Inventories provide indispensable buffers to improve the

leveling of production activity, but they constitute a
major investment of the funds of most firms.

The traditional method of timing production runs and

inventory replenishment has been by reorder point.
94
 Reorder point control should be replaced with MRP for
production items and by DRP (distribution requirement
planning) for finished goods inventories.
Under reorder point, total costs of inventory policy (TC)
are generally taken to include the following as the
most important cost elements:

TC = setup costs (or procurement costs) + holding costs + stock

out costs A first approximation to the cost categories of this
equation is to specify the total cost to be

(for never stock situation)

TC  cD/Q  (ipQ(1 - d/r))/ 2
For D= Annual Demand, p=price per unit
95
 The procurement or setup cost is “c” dollars per order,
and the order or production run amount is “Q”
units per batch. If the item is produced, it is at a daily rate of
“r” and depleted at a daily rate of “d”.

The value for the effective rate of interest, i, is often

taken to be about 30 percent, to include the opportunity cost of
capital. insurance, obsolescence, and other costs of holding.

96
 economical prodUction qUantity (epq):

The above TC equation is minimized when

This equation is for the case of setting up a machine to run the
item to a certain inventory level, then running that machine on
another item until stocks are nearly depleted.
EPQ  2 Dc / ip (1  d / r )
The economical production quantity, or EPQ, is the
approximate optimal value of units per batch to manufacture,
assuming simplistic uniform demand rates for finished goods
with simplified work centers. Although reorder point continues
to be commonly used, superior total planning control is
possible with computer-based MRP.

97
inVentory theory and modeling:
Proper control of inventory requires a delicate balance and careful, detailed
planning. To the controller who sees funds tied up in material in the warehouse, work-
in- process inventory, and finished goods not shipped, the natural reaction is that
inventories are too high. To the production superintendent faced with the prospect of
interrupted deliveries or silent production lines due to inadequate raw, in-process, or
finished materials, the response must be that inventories are too low. Therefore, a
balance is needed between holding large quantities to satisfy the latter and frequent
stock replenishment to satisfy the former. This might be represented, as in below figure

98
 If the replenishment quantity q is represented on one axis and the total

inventory cost in dollars is represented on the other.

Many reasons exist for keeping inventory. They include: to improve

customer service; to hedge against demand surges and variation of production

level; to take advantage of favorable prices; to ensure against error and loss; and

to avoid production stoppage.

Overproduction for any of these reasons can, on the other hand, increase

costs through high investment and low capital turnover, material obsolescence,

spoilage an deterioration, storage and handling excesses, and inefficient use of

space due to overcrowding.

99
Two basic concepts of control models need to be cognized:
Transaction reporting
periodic review.

TRANSACTION REPORTING:
Transaction reporting requires continuous, accurate updating of stock
records to determine when a replenishment order should be initiated. Frequent
stock activity, high volume requirements, and identifiable individual units may
make this type of system more desirable. This system may entail perpetual (or
continuous) record processing: e.g., reporting the use of each item and continuous
monitoring of stock levels. When a predetermined reorder point is reached, an
economic order quantity acquisition is initiated. This reorder point is set to ensure
that sufficient stock is available to carry the production process until the
replenishment supply is received.
100
PERIODIC REVIEW:

A second concept is that records will be reviewed periodically (weekly,

monthly, quarterly, etc.) and if the level of inventory for that ; item has fallen below
a certain target level, anew ) order will be placed. If it has not, the record will be ,
returned to the file for review again at the end of the next period. Target levels,
period lengths, and e replenishment quantities are dependent on frequency of use,
replenishment lead time, and criticality of item. This system is usually more
difficult to establish but results in lower clerical cost to maintain stock control. Both
transaction reporting and periodic review systems can be maintained manually or
by computer, if the inventory system is of sufficient size to warrant computer
control.

EXAMPLE:
A manufacturer uses wooden pallets for unit load shipping of the product.
These pallets are used regularly at rate of 100 per month and purchased from a
vendor Rs. 3.50 per pallet. They are stored in an unheated but covered shed until
needed, 19 and it is estimated that it costs 20 percent of the unit value to pay for the
investment and storage costs.
101
A fixed cost of 150 in clerical time and processing is incurred every time a
replenishment order is processed. If pallets are available when needed, re -handling
of the unit load of final product is necessary at a cost of Rs10 per unit. Delivery
normally takes from 6 to 10 days from the time of order, and 6, 7, 8, 9, or 10 days
are equally likely. To determine the EOQ, the following is considered:

If C = replenishment cost
S = storage cost
I = number of inventory turnovers per year
T = total cost per year for storage and replenishment
R = rate of demand
Q = order quantity (EOQ) 102
 then Q can be calculated to be the order quantity which results in the
lowest cost T
Q =  (2CR/S)

=  (2(50) (100)/ (0.2)(3.50))= 120 Pallets/ Order.

I = ( R ) (Number of Months)/ Q

= (100)(12)/ 120 = 10 Turnovers/ Year

In this example, a transaction system is to be used, and a reorder point

needs to be determined which will provide protection during the reorder period of 6
to 10 days. Since it is equally likely that delivery can be at any time between 6 and
10 days, inclusive, the reorder point will be selected at the point that gives a cost
balance between overstocking during the lead time and under stocking.
Each time period of days from 6 to 10 has 1 chance in 5 of occurring in
the replenishment cycle. By weighting the chances of various delivery possibilities
by the cost of overstocking versus under- stocking, a weighted average of delivery
days can be computed which establishes a basis of the reorder points.
103
In this example it may be computed as follows:
Number of items demanded per day = 100/20* = 5 .
*20 days assumes a 5-day workweek
Average cost of overstocking = (5)( 3.50)(1/5)(x- 5)

where x = delivery period between 6 to 10 days

Average cost of under stocking =(10 X 1/5)[10-(x -5)]

Solving for x as the point where the weighted-average overstocking

cost equals the weighted-average under stocking cost:
(5)(3.50)(1/5)(x- 5) = (10)(1/5)(10 -x)
3.5x- 17.5 = 20 -2x
5.5x = 37.5
x= 6.8
104
The weighted-average delivery period for the purpose of planning

the reorder point is 6.8 days.

Reorder point = (100/20)(6.8) = 34.0

In summary, place an order for pallets when the pal- let inventory

drops to 34. Thus, you will provide an economical stock system

for pallets as long as the costs and d factors or the delivery time

factors do not change.

105
Pay Back Time

106
 payBack time
Payback Time is a rough – and – ready model that is looked upon disdain by
many academic theorists . Payback sometimes called payout or payoff. Yet pay
back is most widely used decision model, and it certainly is an improvement over
the criterion of urgency or postponability.

Further more, it is a handy device

a. Where precision in estimates of profitability is not crucial and

preliminary screening of a rash of proposals is necessary

b. Where a weak cash and –credit position has a heavy bearing on the
selection of investment possibilities and

c. Where the contemplated project is extremely risky.

107
The Payback Calculations follows:

P=I/O
Where P= Payback Time, I= Initial increment amount invested and O= The
uniform annual incremental each inflow from operations.
Essentially, payback is a measure of the time, it will take to recoup in the
form of cash from operations only the original amount invested. Given the useful
life of an assets and uniform cash flows, the less payout period , the greater the
profitability or given payback period, the greater useful life of the asset, the
greater the profitability. Note that, payback does not measure profitability, it does
measure how quickly investment amount may be recouped.
An investment’s main objective is profitability, not recapturing the
original outlay. If a company wants to recover its investment outlay rapidly it need
not bother spending in the first place. Then payback time is ZERO; NO WAITING
TIME is needed.

108
The Major weakness of the payback model is its neglect the
profitability.
Continuous Technological up gradation is required to be in
the competition.
The profit earned is ploughed back, with additional
investment in order to enhance the growth of the organization
Such options involves various alternatives and working for
return on investment.
Firstly the technical feasibility is examined reliably
predication is a valuable activity to design reliable systems.
Failure have to be identified and proacted
System need to be designed that is robust
109
 Design Review:
1. Determine if the product will actually work as desired
and meet the customer’s requirements
2. Determine if the new design is producible and
inspectable
3. Determine if the new design is maintainable and
repairable
 Financial Feasibility:
Net income
Margin on Sales =
Sales
110
RETURN ON INVESTMENT (ROI):
The return on investment is measured by adding back interest to net
income after taxes and dividing by total assets. It is a measure of the after –
tax profitability with which the firm’s total resources have been employed.

Return on investment = Net income + interest Total Sales

=192,000 + 40,000 2,000,000

ROI=I= S-P P
Where P= The amount borrowed (or the amount invested )
S= The amount paid back (or the amount collected) at
the end of the year

111
RATE OF RETURN:
For example, assume the following situation.
Invest Rs.10,000 in a laborsaving machine.
Labor savings = Rs 2500 per year.
Useful life = 10 years.
Company desires 10 percent return on investment.
Machine will be depreciated for tax purposes over 10 years on a straight-line basis.
Company has 50 percent tax rate.
Machine will have no salvage value.

Annual Cash-Flow Computations:

Compute the annual cash flow as follows (in this example, the savings are the same
each year):
Cash in from labor savings ………………………………………….Rs. 2500
Cash out for taxes ………………………………………………… Rs. 750*
Annual Net cash inflow……………………………………………..Rs.1750
* Income subject to tax = Rs2500- Rs.1000 depreciations = Rs.1500 at 50% = Rs750
112
RATE-OF-RETURN CALCULATIONS:
The investment outlay is Rs.10,000. The annual cash savings is Rs.1750. A 10
percent return is desired. Look at Table B-4. Under the 10 percent column, read
down to 10 years. The factor is 6.44. Multiply 6.44 by the annual savings of
Rs.1750. The result is Rs.11,270. This means that the present value of the future
cash inflows of Rs.1750 per year is worth Rs.11,270 today if a 10 percent return
on investment is desired. Since the investment is only Rs.10,000 and the present
value of future inflows is Rs.11,270, the investment would be made.
If the actual return is desired, divide the investment by the annual savings,
Rs.10,000/Rs1750 = 5.71, Again, look at Table B.4 and read across from year
10. The factor 5.71 is between 12 % and 14 % or about 13% return on
investment.

113
COMPLEXITIES:
Variable Annual Savings: The cash savings generated from a capital project are
seldom the same for each year of the life of the project. The savings may be
different because of the use of accelerated depreciation, varying production
levels, changes in tax rates, and other related items. The discounted cash-flow
concept can be used with varying annual savings in two ways, as illustrated in
the following example company has the opportunity to invest Rs.1000 in e of
four alternative projects. Each project has an estimated life of 6 years and a total
return of Rs.1800. The flow of the savings is as shown in this array.

Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs

114
 RECIPROCAL OF PAYBACK PERIOD COMPARED WITH RATE OF
RETURN
30% 30%

Reciprocal pf Payback Period

20% 20%

Rate of return

10% 10%

0 0
0 2 4 6 8 10 12 14 16 18 20

115
INTERNAL RATE OF RETURN:

One approach is to calculate the rate of return on each project. The

internal rate of return is the rate which is being earned on the unamortized balance
of the investment, such as the rate on a home mortgage. Using Table B-4, the
calculation is made using a trial-and-error approach. What rate will bring the
future cash flow back to Rs.1000 today?
The rates are,
Project A: 25 + percent
Project : 30 + percent
Project C: 16 percent
Project D: 25 percent

116
NET PRESENT VALUE:
VALUE
The net present value of an investment is the difference between future
cash inflows discounted at a specified rate and the amount of the original
investment. If a desired rate of return is known, the present value of the future
flow can be determined. Assume the company wants a 20 percent return on
investment. The present-value factors for 20 percent for each year are given in
Table B-2. Applying these factors to the flows for the four projects, a present
value for each project is as follows:

Project investment Present Value Net Present

@ 20%
A Rs.1000 Rs. 1092 Rs. 92
B 1000 1188 188
C 1000 996 -4
D 1000 1142 142
Refer the table B-2

117
Using the net-present-value (NPV) approach, we see that project B has the

highest net present value. Projects A, B, and D all have positive net present

values, which mean that these projects all return more than 20 percent. Project

B has the highest NPV, which makes it the most attractive alternative. Project

C, with a negative NPV, returns slightly less than 20 percent.

How would you rank projects if the original outlay is different? The one with

the highest investment is likely to have the highest absolute Rupee NPV but

may have a smaller return. Projects of this nature can be ranked by the use of a

profitability index.

118
PROFITABILITY INDEX:

Rs. Rs.

Rs. Rs.

Rs. Rs.

Project A has the lowest Rupee NPV. It also has the lowest investment outlay.
The index shows, how- ever, that it has the highest return; i.e., the Rupee
received discounted at 20 percent are higher relative to the investment than the
Rupee received in either project B or project C.

119
TABLE : B-1 PRESENT VALUE OF RS.1 RECEIVED AT END OF THE YEAR
INDICATED
Present Value =1/(1+i)n

120
TABLE : B-2 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF THE YEAR INDICATED
Present Value =1/(1+i)n-1/2

121
TABLE : B-3 PRESENT VALUE OF RS.1 RECEIVED AT END OF EACH YEAR FOR N YEARS

122
TABLE : B-4 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF EACH YEAR FOR N
YEARS

123
 emulaTiNG

The BeNch mark of

koBa yashi – miTsuBishi

success model

124
 The keys
KEY: 1
Cleaning and Organizing

KEY: 2
Measured Management Objectives ( Safety, Horizontal Hierarchy,
Clear Instruction from TOP)

KEY: 3
Small group activity
a. One suggestion per month per person.
b. Short standing meetings to stress
efficiency.

125
126
KEY: 4

Reducing Inventory. (Work - in - Progress)

a. All activity that don’t add value to product are

wasteful.

127
128
KEY: 5

qUick changeoVer technology

a. Any one should be able to perform a quick
changeover ever in new environments.

b. Accept the change to shorten all changeovers

to less than one cycle time.

129
130
KEY: 6

ValUe analysis of manUfactUring methods

(improVement in methods)
a. Ask “WHY” five times for every motion of
activity.
b. Modular a management of predetermined
Time standards
(i) Material Handling Method

131
132
KEY: 7

Zero monitor prodUction

a. Monitoring is a form of Waste

b. Watching the running machine?

133
134
KEY: 8

integrating fUnctions

a. Reduce the inventory at the joining points.

b. Reduce the “Joints” and make seamless.
c. Planned Maintenance activity.

135
136
KEY: 9

maintaining machines and eqUipment

a. Prepare Preventive maintenance group

b. Full employee involvement in study groups

137
138
139
KEY: 10

work floor time polices

 Encourage the workers to do the next day’s

preparation before they go home at night.

140
141
KEY: 11

qUality assUrance system

 Next process is customer.

 No bad product to the next process.
 Workers perform inspection on their own
product.

142
I’ll inspect what I make

We must build quality in

the processes
themselves!

143
poka yoka

144
KEY: 12

deVeloping yoUr sUppliers

 Treat external as internal division.

 Technical Support.

145
KEY: 13

eliminating waste with a “ treasUre moUntain map”

 Only do those actions customer will pay.

146
147
KEY: 14

empower worker to make improVements

 Expand processing capability in the improvement corner.

 Building through Low-cost Automation Devices.

148
149
KEY: 15

skill Versatality and cross training

150
151
KEY: 16

prodUction schedUling

152
153
KEY: 17

efficiency control

 Decide on standard times for each process.

 Compare the standard times to actual times.

154
155
KEY: 18

Using microprocessors

 Mechatronics.
 Learnt about sensors and how they are used.

156
157
KEY: 19

conserVing energy and materials

 Quantify the importance of conservation by showing

energy and material costs as a percentage of total costs.

158
159
KEY: 20

leading technology - site technology

 There is no interest in the progress of the other players in

the industry.
 People in the factory are content with the current site
technology.
 The factory is about on par with the rest of the industry.

160
 eight wastes
Taiichi Ohno's original enumeration of the seven wastes plus
underutilized people. These are:

1. Overproduction: Making more, "earlier, or faster than the next

operation needs it.
2. Waiting for the next process, worker, material, information, or
equipment.
3. Transportation: unnecessary transport of materials.
4. Overprocessings of anything that does not add value.
5. Inventories more than the absolute minimum required to meet
customer demand.
6. Motion: unnecessary movement (like waiting) of people.
7. Production of defective parts or information.
8. Not fully utilizing employees brain power, skills, experience,
talents and creativity.

161
value sTream
maPPiNG

162
ValUe stream mapping – from rfq to deliVery

1. Determine the process family.

2. Draw the current state map

3. Create a future state map

4. Develop the action plan to get to the

improved future state.

163
foUr steps to ValUe stream mapping

step 1: prodUct deVelopment

 Identify customer requirements,

 Define method of delivery, and
 Define typical quantity requirements.

This value stream can serve more than one customer, but be
sure to use similar primary processes. Use a pencil rather
than a computer.

164
step 2: process design
Perform an upstream walk-through for each process step, observing
and documenting as much of the following as possible.

Cycle time (Operator and Machine cycle time)

Changeover times,
Average inventory queue,
Average production batch size,
Number of operations at each process,
Package or container size,
Available time (take out break and lunch times),
Scrap rate,
Machine up-time (availability), and
Number of product variations.
165
step 3: preparation
Record as much information as is pertinent in the process description
box.

step 4: planning

Develop a future state map,

Dream about perfection (Imagineering),
Think outside the box,
Develop alternatives to the current state map that are
muda free, and
Focus on velocity.

166
 1% error
adds direcTly
To The
BoTTom liNe

167
 1 % error adds directly to the Bottom line

This business was very focused on its core processing activity, but less
focused on the support functions. One of these support functions was the
off-line handling and managing of its molds, which were quite fragile and
breakable.

This was considered to be a less important activity than production and, as

long as the molds were ready for production as required, Plant Management
largely ignored this activity.

Also, the budget for this section was relatively small; in anyone year they
would spend about $200,000 on the replacement of molds that were broken
off line. As this was only about 1% of costs, the activity was never
previously targeted in typical cost reduction programs.

168
 contd…

As part of an operational review, this organization investigated its 1

%errors and this previously ignored cost.

A comparison with similar plants showed that it was possible to operate

with almost zero breakages and that the current expense could be
eliminated with better handling and management. The procedures from the
other plants were adopted to address the issue.

This resulted in breakages being almost eliminated. Focusing on this

previously ignored 1 % error and adopting simple procedural changes
added $200,000 to the bottom line.

169
Process caPaBiliTy

170
 process capaBility ratio

The concept of Process Capability Ratio (PCR), was defined as

PCR = USL – LSL / 6σ (two – sided)

For one – sided upper specifications only, the PCR is defined as

PCRU = USL -µ / 3σ (upper)

And for one – sided lower specifications only, the PCR id defined as

PCRL = µ - LSL / 3σ (Lower)

The PCR aids in the evaluation of processes with respect to their specification
limits.

171
Recommended Minimum values of the Process Capability Ratio

Two – sided One – Sided

Specification Specification

Existing processes 1.33 1.25

New processes 1.50 1.45

Safety, strength, or critical 1.50 1.45

parameter, existing
process

Safety, strength, or critical 1.67 1.60

parameter, new process

172
173
 Process follow out for a normally distributed characteristics (One-
sided specifications). For Two sided Double the value of Y- axis

174
indices of process capaBility

short term capaBility

175
long term capaBility

176
Example: PCRs AS FRACTION NONCONFORMING

PCRs may be translated into an expected fraction nonconforming,

assuming a normal distribution for the characteristic of interest. For instance , a
PCR = 1.25 for a two –sided specification indicates that

PCR = USL – LSL / 6σ = 1.25

So that USL – LSL = 7.5σ and

Z = 3.75σ / σ = 3.75

More extensive tabulation from Normal Distribution Table, show that,

1 – Φ (3.75) = 0.000088

Since we are considering a two – sided specification, the expected fraction non
conforming is 2 (0.000088) = 0.00018. Currently, quality controllers are
concerned with parts per million (ppm) defective. For PCR = 1.25, we expect
180 ppm non conforming.
177
 the sigma conVersion gUidelines

FROM

Short - Term Long - Term

Short - Term
No Action + 1.5
To

Long - Term
- 1.5  No Action

178
ProducT QualiTy

179
180
181
 when to Use dpo and when dpU?

• e-dpo denotes the probability that an opportunity will not have a

defect.

• e-dpu denotes the probability that a unit will be defect free.

•In most practical situations, we have more than one CTQ (critical-
to-quality) characteristics associated with a product and hence
more than one opportunity of defect. Hence it is more rational to
use e-dpo as a measure of yield.

• However, if the possible number of opportunities is infinitely

large, then e-dpu should be used as a measure of yield.
182
performance measUres at a glance

d: Number of defects
dpu: Defects per unit
dpo: Defects per opportunities
Dpmo: Defects per million opportunities
Zst: Short term sigma rating
Zlt: Long term sigma rating = Zst + 1.5
Y tp: Through put yield
Y rt: Rolled through put yield
Cp: Process capability (Potential) index
Cpk: Process capability (performance) index
PPM: Parts per million defects

183
Yes

184
NO

185
186
187
 yield: the classical perspectiVe
Y final == S / U
where Y final == Final yield
U == Number of units tested
S == Number of units that pass
Is the classical calculation of yield con-elated to other- major business metrics?

-Yield has always been considered a very important metric for guiding the
business; however, no correlation is observed between yield and profit
margin. How can this be explained?

188
 idea of rolled throUghpUt yield
 Suppose we say that there are 5 key tasks which must be executed
( without error) in order to successfully prepare a report, viz writing,
typing, Xeroxing, collating and binding .

 Suppose that each of these tasks are operated at 3σ level. The

probability of not getting a defect at any of these stages is 0.9973.

 Then the probability of preparing an error free report is given by 0.9973

x 0.9973 x 0.9973 x 0.9973 x 0.9973 = 0.9866.

 If there are 18 such reports prepared, then the total number of

opportunities for non-conformance would be 5xI8=90.

 The probability of 100% conformance to all requirements would be

0.986618 = 0.7840.
 Thus the rolled throughput yield is given by ytp = 78.40%.

189
190
191
192
193
194
195
196
 exercises
1. In an organization the rate for winding, machine,
laminating and processing Departments are
80%,98%,68%, & 99%. What is the YRT, YNA, PPM.

2. In the process of producing 7500 units 50 defects were

observed. The total type id defects that could have
occurred were 10. Find DPU, TOP, DPO & YFT. The
yield of 96%. What is the PPM Level?

3. What is the PPM level for DPU of 2.5?

197
 The 10 sTePs
aNd
miNimiziNG
iNveNTory iNvesTmeNT

198
 step #1: get organiZed

Arrange warehouse/ store in a logical and orderly manner.

Appropriate shelving/ racking

High- frequency items closest to entry / exit
Group like products
Clearly identified names and code numbers

Ensure a high standard of housekeeping at all times.

Use visual management techniques.
Location indicators
Reorder indicators
Line marking

Ensure consistent sign in and sign out of goods.

Identify rush periods and level load activity accordingly.
199
step #2: apply the fUndamentals with rigor

Use the fundamentals of supply chain management and stock

calculation to set and review holding requirements.

step #3: focUs on fUnction, not cost

Recognize that the function of inventory is to maintain a

supply promise to customers and manage the inventory to fulf1l
this need.

Inventory that does not move does not fulfi1 this

need
Base stocking policy on movement and service and
not cost of product .

200
step #4: identify and focUs on leVerage points

 The key steps of cost in inventory are the ownership of the item and
the length of time of ownership.
 To minimize cost, activities should focus on eliminating ownership (as
opposed to access) and/or minimizing the time between gaining
ownership and shipping/using the item.
step #5: limit and prioritiZe resoUrces

Limiting the funds available for investment in inventory will drive the
need to prioritize inventory and extract greater value from the investment.

201
step #6: work on the 1% errors

A key 1% error in inventory management is the tracking of receipts

and delivery. By ensuring that the systems are followed and records
kept, the data will be available to make sound stocking decisions.

step #7: eliminate dUplication

This includes duplication of items, but also duplication of locations
and duplication of safety stock.
step #8: qUestion eVerything
The assumptions made when inventory levels were first set may no
longer be valid. Have supply dynamics changed? Have customer
needs/usage changed? Has our appetite for risk changed?
Review inventory assumptions on a regular basis.
202
step #9: take some chances

 Seek to use innovations that do not have an obvious direct

payback. For example, apply visual management techniques-
 Arrange for consignment stocks if this has not been your policy.
Remember to understand and manage the risks.

step #10: ignore tradition

 Review what is preventing further improvement and change it!

 Review e-business changes that might provide further opportunity.

203
QualiTy Tools
WiTh
jidoka
aNd
Poka yoke
204
andon:
A Japanese word meaning light or lantern. It is triggered by an
abnormal condition or machine breakdown. It is a form of
communication indicating that human intervention is required. Many
times these are presented like a stoplight (red = stop, yellow = caution,
green = go).
poke – yoke (error proofing):
low – cost, highly reliable devices or innovations that can either
detect abnormal situations before they occur in a production process, or,
if they occur, will stop the machines or equipment and prevent the
production of defective products, those that prevent errors by an
operator, and those that detect errors by an operator and give a warning,
and those that defects in products and prevent further processing of
them.

205
heijUnka:
A method of leveling production for mix and volume.

jidoka:
This defect detection system automatically or manually stops
production and/or equipment whenever an abnormal or defective
condition arises. Any necessary improvements can then be made by
directing attention to the stopped equipment and the worker who stopped
the operation. The jidoka system posits faith in the worker as a thinker
and allows all workers the right to stop the line on which they are
working. It is now called autonomation in English.
continUoUs flow prodUction:
A production system where products flow continuously rather
than being separated into lots. No work in process is built up.

206
material reqUirements planning (mrp):
A computerized system typically used to determine the quantity and
timing requirements for production and delivery of items (both
customers and suppliers). Using MRP to schedule production at
various processes will result in push production, since any
predetermined schedule is only an estimate of what the next process
will actually need.
manUfactUring resoUrce planning (mrp ii):
MRP as just defined, plus capacity planning and a finance interface to
translate operations planning into financial terms, and a simulation tool
to assess alternate production plans. ERP is enterprise wide resource
planning waste.
oVerall eqUipment effectiVeness (oee):
A machine’s overall equipment effectiveness is the product of
its availability. Performance efficiency, and first – pass yield.
207
first- pass yield (fpy):

The quality rate, is the percentage of units that complete a

process and meet quality guidelines with out being scrapped, rerun,
retested, reworked, returned, or diverted into an off-line repair area.
FPY is calculated by dividing the units entering the process minus the
defective units by the total number of units entering the process.

cycle time

The time required to complete one cycle of an operation. The

time elapsing between a particular point in one cycle and the same point
in the next cycle. If cycle time for every operation in a complete process
can be reduced to equal takt time, products can be made in single-piece
flow.

208
 mistake - proofing (or poka – yoke)

Mistake - Proofing emphasizes the detection and correction of mistakes before

they become defects delivered to customers. It puts special attention on the one

constant threat to any process: human error. Mistake – Proofing is simply to pay

careful attention to every activity in the process and to place checks and problem

prevention at each step. It’s a matter of constant, instantaneous feedback, rather

like the balance and direction data transmitted from a cyclist’s ears to brain,

keeping his or her bike upright and on the path.

209
USES OF MISTAKE – PROOFING
Mistake – Proofing can be used to:
 Fine – tune improvements and process designs from DMAIC projects.
 Gather data from processes approaching Six Sigma performance.
 Eliminate the kinds of process issues and defects needed to take a
process from 4.5 to 6 Sigma.
BASIC STEPS IN MISTAKE – PROOFING
Mistake – Proofing is best applied after completion of a through FMEA
prediction and prevention review. Then we can
 Identify possible errors that might occur despite preventive actions.
 Determine a way to detect that an error or malfunction is taking place or
about to occur.
 Identify and select the type of action to be taken when an error is detected.

210
DIFFERENT KIND OF ERRORS
• Forgetfulness – Rail gate closing
• Errors due to misunderstanding – Steps on break car with auto transmission
• Errors in identification – Bill amount
• Errors made by Amateurs
• Wilfull errors – No cars at sight crossing in red.
• In advertent errors – Crossing without noticing
• Errors due to slowness – Delays, step on break
• Errors due to lack of standards – To discretion
• Surprise errors – Malfunction without warning
• Intentional errors – Crimes
Mistake happen for many reasons, but almost all can be prevented if we take the
Time to identify when and why they happen.

211
The basic types of “Mistake – Proofing Device” are:

Control:

An action that self – corrects the process, like an automatic spell –checker /
corrector.

Shutdown:

A procedure or device that blocks or shuts down the process when an error
occurs. Example. The automatic shutoff feature of a home iron.

Warning:

This alerts the person involved in the work that something is going wrong.

Example. A seat – belt buzzer. So is a control chart that shows that a process may

be “out of control”.
212
Some common types of Mistake –Proofing measures include:

• Color-and shape-coding of materials and documents

• Distinctive shapes of such key items as legal documents

• Symbols and icons to identify easily confused items

• Computerized checklists, clear forms, best-in-class, up-to-date procedures and

simple workflows will help to prevent errors from becoming defects in the

hands of customers.

213
MISTAKE – PROOFING “DOS AND DON’TS”

DO’s:

 Try to imagine all conceivable errors that can be made.

 Use of all your creative powers to brainstorming clever ways to detect

and correct errors as part of the work process itself.

DON’TS:

 Fall into the “ to error is human” mindset.

 Rely on people to catch their own errors all the time.

214
imPlemeNTiNG
The
leaN kaizeN

215
 Vision statement

Broad oBjectiVes
Foster a commitment to continuous improvement with in- creased visibility of how
we use time. Reduce or eliminate activities that do not add value.
Foster a commitment to a high level of quality-doing the right things right the first
time.
Apply state-of-the-art tools for waste reduction and quality improvement.
Change the management culture from "traditional" to "team oriented," enhancing
employee involvement at all levels.
Employ statistical management techniques as a new language for all employees,
identifying problems when they occur, and resolving them at the lowest possible level
in the organization.
Train employees to be team leaders, facilitators, and team members in accordance
with the new culture.
Foster innovation and commitment to being world class all levels.
Promote the use of consensus decision- making whenever possible as the
foundation for the new culture. 216
market imperatiVes
Compress lead-time from six weeks to two weeks.
Improve on-time delivery performance from 75 to 95 percent.

cUrrent conditions
Backlog: 2-3 weeks (shippable orders)
Setup times: punch, 45 minutes
brake, 40 minutes
hardware, 30 minutes
spot weld, 25 minutes
Material management: batch-push
Subcontract lead times: 1-2 weeks
Lot sizes: 90 days
Inventory turns: 8 turns/year
Lead time: 5-8 weeks (including outside processes)
Facilities layout: process functional, multiple buildings
Quality: Cost = 2% of sales
Productivity: Rs. 8500 per employee/year (Rs. 12000 direct labour) 217
to – Be Vision
Backlog: 3 days maximum (shippable orders)
Setup times: punch, 9 minutes
brake, 12 minutes
hardware, 5 minutes
spot weld, 9 minutes
Material management: demand pull
Subcontract lead times: 2-3 days
Lot sizes: 2 weeks
Inventory turns: 20 turns/year
Lead time: 9-11 days (including outside processes)
Facilities layout: cellular, single building
Quality: cost < 1 % of sales
Productivity: Rs. 10000 per employee/year (Rs. 130000 direct labor)

218
model-line personnel will exhiBit the
following characteristics:
Accept only zero quality rejections;
Are not passive witnesses;
Keep the flow;
Continually suggest improvement;
Are interested in production goals;
Know how to do their jobs;
Know how to do others' jobs;
Can stop the line;
Assist their teammates.
Predict and avoid problems;
Measure their own output;
Measure their own quality;
Understand the product;
Understand the process;
Call in resources as needed;
Communicate, cooperate, collaborate; and
Are team players and team leaders.
219
role of steering team:

Visits other successful companies;

Provides organizational development through training;
Generates, revises, maintains the vision;
Develops and communicates the vision and plan, formally and informally;
Acts as strong sponsor for the entire improvement process;
Remains visible in the implementation process;
Sets the example (good at the fundamentals);
Demonstrates the new values of absolute quality and waste elimination;
Models pro-active behavior;
Begins and ends meetings on time;
Uses consensus decision-making;
Supports "do it right the first time";
Directs, informs, and guides the continuous improvement coordinator, outside
consultants, and model-line team in a collaborative manner;
220
 cond…

Resolves disagreement by consensus;

Meets periodically (not less than monthly) to review the progress of
the program;
Encourages and sponsors program activities and strongly sponsors
the successful adaptation of the new philosophy at The Jobbe Shoppe;
Chooses problem/opportunity areas for teams to work on;
Creates guidelines and provides support to team (for example,
defines boundaries, expectations);
Meets with team leaders and program coordinator to review problem
statement, milestones, and action plans;
Manages change by spreading and demonstrating (by action) the new
values; and
Ensures the proper resources are assigned to accomplish the task
within budget and schedule
221
 role of the continUoUs improVement
coordinator

Coordinates with steering team members;

Reports status and problem areas to facilitate corrective action when
needed;
Establishes ongoing education program in collaboration with steering
team;
Ensures that teams have a fully developed project plan;
Supports the teams in using quality improvement processes, applying
Just-in Time (JIT) techniques, and developing as a team;
Aids the team leaders in preparing for meetings, provides feedback on
team meetings; Provides a link between team leaders and the steering
team;
Keeps up to date on world-class technologies;
Instructs on general problem-solving techniques;
Prepares and delivers team training on selected topics, serves as resource
person to supervisors, team leaders, and members;
222
 cond…

Monitors progress of the teams, consults on use of techniques;

Shares experiences and results of team activities with others; and
Observes group dynamics and works with team leader to design and
implement activities that contribute to team health;
Leads the team through the problem -solving process reflected in the
project plan and schedule;
Teaches/refreshes quality improvement and waste reduction JIT
techniques;
Communicates team progress to the team;
Communicates/coordinates with supervisor and program coordinator,
especially before and after team meetings;
Shares experience and knowledge;
Fulfills administrative duties; and
Encourages team member participation.
223
224