Finding the ROI in Your Quality System


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Whether you are producing cooking oil, baby oil or motor oil, one matter is constant, if you are trying to implement a quality system; you are competing with other projects for finite corporate resources. One of the most effective ways to compete for those resources and demonstrate project success is to be able to quantitatively demonstrate Return On Investment (ROI).
Louis Halvorsen, CTO, Northwest Analytics, explains how to develop the ROI of quality systems and provide example case studies. He presents:
• How to choose the project justifications that best meet your commercial requirements and to improve your bottom line.
• What are common ROI targets and how may they be adapted to your plant requirements.
• How to quantify ROI.
Quality systems and operations typically deliver substantial cost benefits and rapid returns. Properly done, ROI modeling will not only enable you to obtain the necessary resources to develop your projects, but will also provide an ongoing basis to justify the quality management operations.
Mr. Halvorsen presents three case studies which illustrate how to set up data collection and analysis to successfully demonstrate ROI and provide for continuing reporting.
• An assembly process where management must determine which defects are most amenable to process improvement and will provide the greatest return for the effort.
• A food processor facing product giveaway by overfilling. How can the processor improve the filling performance and calculate the ROI of the effort?
• A high-speed process that makes multiple products has historically required long startup and change-over times to become stable enough for normal production. How can the producer reduce startup time and waste?
Applying SPC to your production process is one of the quickest ways to realize a return from your quality system. SPC-based process improvements reduce variation and make further improvements possible.
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Finding the ROI in Your Quality System

  1. 1. Finding the ROI inYour Quality System Louis Halvorsen, CTO Northwest Analytics August 11, 2011
  2. 2. About Northwest AnalyticsQuality Analytics software companybased in Portland, Oregon withoffices in Shanghai, China• Global leader in SPC solutions forover 20 years• 3000-company customer base• Focus on Enterprise ManufacturingIntelligence
  3. 3. Why Have a Solid ROI Story?• Justification the biggest barrier to project approval.• All spending decisions are ultimately financial.• The higher the cost, the more likely that someone important will want a clear ROI before signing off.• All opportunities to spend money to improve company operations compete for the same dollars and resources.• Most proposals for other manufacturing applications will include an ROI study – often provided by the vendor.
  4. 4. Typical Quality System Project Justification and Selection Process1) Management comes up with requirement for new or upgraded quality system.2) Quality department told to evaluate and recommend systems.3) Quality evaluates potential systems, selects short list, identifies vendor and gets quote.4) Quality submits proposal to Management.5) Management adds quality system to list and assigns priority.6) Quality proposal loses to Manufacturing, IT, and HR programs with specific ROI.
  5. 5. Justifications Without Specific ROI• Customer / Supply-chain Requirement• Manufacturing Systems Upgrade • Improve value of process data • Consistent across sites• Current system past useful life• Seems like the right thing to do
  6. 6. Our Favorite – Faith in SPCThe comprehensive application of SPC always: - Results in reduced variation - Creates a more predictable process  Reduces costs while improving qualityDeming: The continuous pursuit of reduced variation –even beyond seeming economic justification - will alwayspay off.This requires faith in SPC by upper management.However, “faith” drove the majority of 6-sigma adoptions.
  7. 7. Common ROI Targets• Overfill / Give-away• Defect reduction• Process startup, restart improvement• Energy cost reduction• Reduced rework• Lower warranty costs• Early problem detection• Reduced manpower requirement
  8. 8. Quantifying ROI• ROI = FCQ - ICQ• To determine ROI:  Determine current cost of poor quality  Estimate final cost after implementing quality system - Rule of thumb - Study or pilot project
  9. 9. Quantifying ROIRule-of-Thumb: “Application of SPC will reduce variation by xx%” - Easier and cheaper than running a pilot or trial - Also easy to challenge, hard to provePilot project: Limited application of system or technique - Best proof of potential ROI, easy to defend - Must select high-value target - Requires funding, resources, time, cooperation - May not get desired results (bad luck, workers focused, wrong opportunity, not enough time, other agendas)
  10. 10. Three ExamplesAnalyzing assembly defects - Reducing defects increases yield, reduces rework costsReducing fill-weight variation - Identifying sources of variation, optimizing process reduces overfillReducing startup and changeover times - Improving startup/changeover procedures increases yields
  11. 11. Defect Reduction ExampleQuality problems in complex assembly process - Poor yield due to rejected assemblies - High re-work costs - Delayed shipments- Easy to quantify costs, but… - The overall nature of the defects is poorly understood - Hard to focus on the right issues
  12. 12. Defects Identified, Counts Recorded
  13. 13. Pareto Ranks Defects by Count
  14. 14. Cost Weighted Pareto
  15. 15. Charts Show Candidates for Improvement Breaks show many samples with unusually high defect rates.
  16. 16. Charts Show Candidates for Improvement “Breaks” show many samples with unusually high defect rates.“Rotation” defects are in perfectcontrol.
  17. 17. SPC critical to solving problemsBREAKS – SPC shows that a “special cause” affectsthe process at specific times with a measurable result.You can focus on the specific high-defect events to findthe source of the problem.ROTATION - Defects are consistent and the defect rateis built into the process (2.6%). It does no good to lookat high and low defects – the process must be changed.Two very big problems, two very different approaches.
  18. 18. Estimating defect-reduction ROI• Cost-based Pareto identifies key issues• SPC points out source of problem, guides solutionCost of Rotation and Breaks defects of 3 month sample(10% of total production) = $14,410Projected cost for total production = $144,100Assuming 35% reduction in variation-caused defects,total savings would be $50,435 per quarter, or over$200,000 per year.
  19. 19. Fill Weight Study• Key Cost-of-Quality is Overfill• Process exhibits excessive Fill Variation - Filler intentionally set to overfill to avoid underfill and associated regulatory issues. - Process unpredictable, underfill still a problem• Key cost: “give away”• Other costs: Packaging problems, material accountability
  20. 20. Package Fill Weight
  21. 21. Histogram Shows Overfill and Underfill Issues
  22. 22. SPC Charts Indicate Special Causes
  23. 23. Histogram results calculate overfill cost Cost based on samplesCost estimated from distribution
  24. 24. Application of SPC: Variation Reduced
  25. 25. Adjust Process Target Closer to LSL
  26. 26. Initial and Final Process Variation
  27. 27. Estimated Cost Savings Overfill Cost per 8-hour Shift based on 12,000 Units Cost estimated at $ 0.10 per 0.01 weight unitsEstimated Original Overfill Cost per Shift = $ 576 - $ 804Overfill Cost per Shift after process improvements = $ 337Final Overfill Cost per Shift after adjusting to Target = $ 34Total Savings per Shift = $ 542 - $ 770Total Savings per Year = $ 280,000 - $ 440,000
  28. 28. Process Startup, Restart ImprovementA high-speed process that makes multiple products hashistorically required long startup and change-over timesto become stable enough for normal production. • Process startup takes 60-90 minutes to stabilize • Product change-over can take up to 2 hours • Key costs: - Scrap / Low Yields - Manpower & Equipment Utilization • Easy to calculate costs
  29. 29. Process Startup Issues SolutionThe solution is to apply Analytics (SPC, ProcessCapability Analysis) to monitor the Startup and Restartprocesses and make informed decisions. • Use higher sampling rates for Startup/Restart • Apply SPC to monitor process variation • Use Capability Analysis to determine when OK to start • Start process when Stable, Predictable, Capable
  30. 30. Process Startup Analytics SPC indicates when process becomes stableCapability Analysisindicates when processbecomes capable
  31. 31. Process Startup Improvement ResultsResult:• Startup time reduced to 30 minutes• Changeover time reduced to 45 minutes• More predictable initial run quality, fewer shutdownsBenefits: • 1 - 1.5 hours more production time per run • Fewer start/stop/restart incidents, less scrap • Better manpower & equipment utilization • Faster changeovers allows more production flexibility
  32. 32. ConclusionsUnderstanding ROI is critical for project approvalQuality Departments have unique ROI issuesDetermining ROI using analytics can has its challenges,but can create compelling ROI storiesQuality Departments also have a some of the best dataand opportunities to show significant ROI
  33. 33.