Why Six Sigma?

1. Why Six Sigma? 6s

2. The Customer – Supplier relation CUSTOMER DELIVERY CYCLE TIME Need PRICE Do COST QUALITY DEFECTS SUPPLIER • Our survival is linked to our company’s growth. • Our company’s growth largely depends on customer satisfaction. • Customer satisfaction depends on Quality, Price, and Delivery. • Quality, Price, and Delivery are linked to Process Capability. • Process Capability is greatly limited by process variation. • Process variation leads to an increased number of rejects, higher costs, and longer production time.

3. Total Product or Service Price to Customers Competition Drives a Lowered Price Profit Profit Profit Profit Waste (COPQ) Waste (COPQ) We must reduce COPQ to restore the profit margin COPQ Total Cost to Produce or Provide Theoretical Costs Cost of Doing the Right Things Right the First Time Theoretical COSTS Theoretical COSTS 0 a. b. c. d. Note: COPQ = Cost Of Poor Quality

4. Cost Of Poor Quality WHAT IS IT? • Costs that are associated with … • Internal Failure Costs • External Failure Costs • Appraisal Costs • Prevention Costs • Lost Opportunity Costs

5. INTERNAL FAILURE COSTS: Cost Of Poor Quality Failure costs occurring prior to product/service delivery or shipment • Design Corrective Action • Rework-Design Change • Scrap-Design Change • Production Liaison Costs • Purchasing Failure Costs • Purchased Material Reject Disposition • Purchased Material Replacement Costs • Supplier Corrective Action • Rework of Supplier Rejects • Uncontrolled Material Losses • Manufacturing Failure Costs • Material Review/Corrective Action • Disposition Costs • Troubleshooting/Failure Analysis • Investigation Support Costs • Operations Corrective Action • Failure to Transfer from Design to Manufacturing • Rework and Repair • Reinspection/Retest Costs • Failure to Scale Up • Poor Characterization • Poor Optimization • Poor Communication • Poor Documentation

6. EXTERNAL FAILURE COSTS: Cost Of Poor Quality Failure costs occurring after product/service delivery or shipment • Customer Complaint Investigation • Returned Goods • Retrofit Costs • Warranty Claims • Recall Costs • Liability Costs • Penalties • Customer/User Goodwill • Other External Failure Costs

7. APPRAISAL COSTS: Cost Of Poor Quality Costs associated with measuring, evaluating, or auditing products or services to ensure quality and performance is maintained • Purchasing Appraisal Costs • Incoming Inspection and Test • Measurement Equipment • Qualification of Supplier Product • Source Inspection and Control Programs • Manufacturing Appraisal Costs • Planned Inspections, Tests, Audits • Checking Labor • Product or Service Quality Audits • Inspection and Test Materials • Set-Up Inspections and Tests • Depreciation Allowances • Maintenance and Calibration • Outside Certifications • External Appraisal Costs • Field Performance Evaluations • Special Product Evaluations • Evaluation of Field Stock and Spare Parts • Review of Test & Inspection Data • Special Tests • Process Control Measurement • Laboratory Support

8. PREVENTION COSTS: Cost Of Poor Quality The costs of all activities specifically designed to prevent poor quality in products and services • Marketing/customer/user • Marketing Research • Customer Perception Surveys • Contract/Document Review • Product/Design Development • Design Quality Progress Review • Design Support Activities • Product/Service Design Qualification Test • Quality Audits & Improvement • Supplier Reviews/Ratings • Purchase Order Technical Data Review • Supplier Quality Planning • Operations Prevention Costs • Operations Process Validation • Operations Quality Planning • Design of Control Equipment • Operational Support Planning • Operator Quality Education • Operator SPC/Process Control • Quality Admin. Salaries & Exp. • Quality Program Planning • Quality Performance Reporting • Quality Education • Field Trials

9. LOST OPPORTUNITY COSTS: Cost Of Poor Quality • Delayed Market Entry • Lost Sales • Lost Customers • Additional Shifts, Lines, Plants, Due to Poor Productivity (i.e., Low Capacity) • Failure to Enter A New Market • Competitor Obtains Rights First • Reliability Issues • Safety Issues • Ergonomic Issues • Legal Issues

10. Why Six Sigma ?? 45 40 35 30 25 COPQ (% Sales) 20 15 10 5 0 1 2 3 4 5 Sigma Rating There is a correlation between a company’s COPQ and the  rating of its key processes

11. The Inspection Exercise Task: Count the number of times the 6th letter of the alphabet appears in the following text: “The Necessity of Training Farm Hands for First Class Farms in the Fatherly Handling of Farm Live Stock is Foremost in the Eyes of Farm Owners. Since the Forefathers of the Farm owners Trained the Farm Hands for First Class Farms in the Fatherly Handling of Farm Live Stock, the Farm Owners Feel they should carry on with the Family Tradition of Training Farm Hands of First Class Farmers in the Fatherly Handling of Farm Live Stock Because they Believe it is the Basis of Good Fundamental Farm Management.”

12. Results of the Exercise Observed Number of “F’s” People 36

13. The Impact of Added Inspection Example: If the likelihood of detecting the defect is 70% and we have 10 consecutive inspectors with this level of capability, we would expect about 6 escaping defects out of every 1,000,000 defects produced. 1000000 100000 10000 Escaping PPM 1000 100 99% 90% 80% 70% 10 1 2 3 4 5 6 7 8 9 10 11 Number of Consecutive Inspectors 7.0 99% 90% 80% 70% 6.0 5.0 Sigma Level Example: If the likelihood of detecting the defect is 70%, it would require about 10 consecutive inspectors to have a Six Sigma level of confidence that the defect will be detected. 4.0 3.0 2.0 1.0 0.0 1 2 3 4 5 6 7 8 9 10 Number of Consecutive Inspectors Note: All sigma values reflect a 1.5  shift

14. The Impact of Complexity on Inspection Note: All sigma values reflect a 1.5  shift Likelihood of Detection 1.0 0.9 Example: If a product contains 100 defect opportunities and the inspection process has a 4 Sigma capability, the long-term likelihood of detecting a defect ( if a defect is present) is about 54%. 0.8 0.7 0.6 0.5 0.4 2 4 6 0.3 0.2 0.1 0.0 10 100 1000 10000 100000 1000000 Number of Defect Opportunities

15. How Process Capability Impacts Cycle Time and Resource Allocation Step X Step Y LS US LS US Product No Defect No Defect Defect Defect Defect Defect Test } Test } * * Analyze Analyze Fix Fix Every time a defect is created during a process step, it takes additional cycle time to test, analyze and fix. These non-value added activities typically require additional floor space, capital equipment, material, and people.

16. Examples of effects of variation Automotive Industry COPQ* • $14.5 Billion in Warranty Costs 2004 • Audi - 101,000 cars affected by faulty Circuit Boards (2001-2003 model year) • Toyota – software glitch on 2004 and 2005 Prius • 70% of all returns to Dealer from Electronics Malfunction • Volvo – 200,000 to 300,000 cars with faulty Electronic Throttle Modules (1999- 2002 model year) *Industry Week March 2006

17. Examples of effects of variation • Quality problems 2005 • Model 21 supply to Los Angeles Police Department • Misfires, followed by ineffective Corrective Action • 1600 Officers informed to switch Firearms Industry Week March 2006

18. Examples of effects of variation • Liverpool, England Manufacturer of Vaccine • 2004 contamination led to destruction of 52 million doses • 50% of U.S. supply affected Industry Week March 2006

19. Why Six Sigma? • Six Sigma is both a methodology and a metric. • Six Sigma focuses on addressing the needs of the customer. • Six Sigma provides a structured approach to understanding and improving processes. • Six Sigma attacks the variation that hinders progress toward a truly lean workplace. • Six Sigma promotes data analysis, ensuring decisions are well justified. • Six Sigma provides bottom line results, improving the condition of the business. • Six Sigma utilizes the team approach to process improvement, gaining employee participation, knowledge, and support. • Six Sigma is a continuous improvement process, striving ever closer to perfection and allowing no complacency with success.