I had a Million Dollars in Savings, but my P&L did not Change?

I had a million dollars in savings, but my P&L did not change? Michael Bremer Cumberland Group - Chicago Motorola University 312 West Hickory St. Hinsdale, IL 60521 630-789-8262 direct 630-235-4210 cell www.cumberlandchicago.com http://www.motorola.com/motorolauniversity/

Quality Perception Gap Source: Six Sigma Financial Tracking & Reporting Bremer, McKibben & McCarty; McGraw-Hill 2005

P&L Impact
Let’s discuss four common reasons why savings may be less than expectations….
Agreements on “what is a savings” are not clearly defined
The organization is focused on improvement activities rather than strategic business improvement
Not using the right metrics for Y’s, y’s, x’s
Governance is not as strong as should be

Where do P&L savings come from…
Soft Savings  come from projects that are not directly traceable to the bottom line , but that over time should yield a business benefit.
Cost Avoidance  Savings
Hard Revenue Savings = provide measurable, incremental benefits to the current base business, typically improving Gross Margins.
Hard Cost Savings = come from a net reduction in resources used or an increase in outputs that result in revenue.

Strategic vs. Project Improvement It is quite easy to find improvement projects; opportunities exist everywhere.

Improvement Projects & Strategic Projects Differ Not as difficult Difficult Getting Resources Customer/Growth/$$ Bottom Line Internal/Cost/Often “Soft Savings” Impact Leadership Team Functional Manager Driven by Actively engaged in progress Struggle to maintain; usually passive Leadership Involvement Great results make meaningful difference to enterprise Great results affect one or two functions Impact Strategic Improvement

Why don’t our metrics drive the changes we want to see?

Baseball’s Right “Y’s”
The measures that give the best predictive information in the game of baseball are those that measure the process.
There is a tendency to use measures focused solely on outputs rather than process , and to use what is available rather than what is needed (50% - 18 month lifetime rule)
Total At Bats
Pitches Thrown
Innings Pitched
Walks to Hits Ratio
Errors / Fielding Percentage
On Base Percentage
Home Runs
Won-Loss Record
Complete Games
Input Measures Process Measures Output Measures

Example: Voice of the Customer
Accurately communicate delivery schedule and level of service I can expect .
Reduce the number of questions and problems I have using your service/product .
Make me feel safe, when you are in my home .
Be flexible enough to accommodate sales fluctuations and changing expectations .
Solve my problem completely so everything works .
Stop treating my precious time as Free .
Don’t transfer me more than once.
In order to meet my expectations you must…..

5 Steps to Develop Relevant Indicators 1. VOB - Voice of the Business 3. CBR - Critical Business Requirements 4. CTP - Critical to the Process 1. VOC - Voice of the Customer 3. CCR - Critical Customer Requirements 4. CTQ - Critical to Quality ID Upstream Process Metrics 2 5 Output Indicators CCR’s Customer Issues ________ ________ _____ 3 ___ _________ ________ ________ ________ _________ VOC ________ ________ ___ 1 ___ _________ VOB ________ _____ 1 ___ CTP’s ________ ___ 4 _____ Business Issues ________ ____ 2 ____ CBR’s ________ ___ 3 _____ CTQ’s ________ ____ 4 ____

The Leadership’s Challenge – Keeping a Focus on the Big “Ys” COPQ Procurement
R&D time as a % of Total Engineering Time
New Product Intro
(NPI) Process
Improvement
Warranty Costs
Excess/Obsolescence
Manufacturing Scrap/
Rework
Direct Material Cost
Indirect Material Acquisition Costs
Engineering Efficiency Little Y’s Big Y’s - Strategic Objective - Results That Matter Process metrics Recover $3B In Lost Margins By 2005 Year End A single metric used as base point to drive behavior changes Margin $$ from Business Growth Vital X’s

Call Center Rep Perception/Reality 200 Hours 345 Hours Total Time Utilized 100 Hours 140 Hours Customer Research/ Follow-up 60 Hours 105 Hours Phone Talk Time 40 Hours 100 Hours Order Entry 400 Hours 400 Hours Available Time Tracked Time Perceived Time Activity

Before and After Metrics Metrics stayed the same Understanding and use of metrics differed radically! Taking ownership Efficiency Call backs Team player Coachability Product knowledge Phone etiquette Computer skills Professionalism Productivity Attitude Phone skills

Leadership and Governance of Improvement
Governance
Change Management
Culture Change

Role of the Six Sigma Sponsor Leaders must proactively manage governance throughout the project Project Governance
Validate the improvement.
Evaluate the financial impact.
Assure disciplined follow-through of the proposed approach.
Assess Black Belt performance.
Celebrate and reward.
Assess the practicality of the proposed approach.
Revisit the cost/benefit analysis.
Oversee implementation and deployment plans.
Probe for the completeness of the data.
Assess the analysis approach.
Constructively challenge the team conclusions.
Assure the business relevance of the project metrics.
Evaluate the data gathering plan.
Review baseline results.
1.0 Define Opportunities 2.0 Measure Performance 3.0 Analyze Opportunity 4.0 Improve Performance 5.0 Control Performance
Choose a team leader.
Review Charter and project scope for focus, clarity.
Share the business case.

Measure Phase Questions
Identify CTQ and CTP Output Indicators (Ys)
Identify process and input measures (Xs) that could be causing variation in Ys
Develop Operational Definitions & Measurement Plan
Plot and Analyze Data
Determine if Special Cause Exists
Determine Sigma Performance
What CTQs have you identified and how do you know the customer is impacted by them?
What CTPs are important to the business?
Which CTQs/CTPs does this project focus on? Why?
How have you assured that the data collected is representative of the process?
What have you learned about the source of the variation from the initial data display? Is the process in control?
What is the current short term process sigma?
Did you re-scope the project as a result of the measurement phase?
Do you have adequate resources to complete the project?
Is the team rigorously following the Six Sigma process?
What are the next steps?
Measure Performance

Financial Bridge Model Savings Volume Margins Material cost Last Year’s Earnings This Year’s Earnings

Why Are We Really Doing This?
Survival and so that we can:
Attract and keep good people in our organization
Communication, Credibility, Growth, Opportunity, Fairness
Secure the same amount of business with less assets
Net Working Capital
Secure the same amount of business with less waste
Gross Margins
Identify profitable growth opportunities through new products, new services and new markets
Revenues, Margins and P&L
Gain more focus on the “ vital few ” factors in our business….really to I.D. things we should not be doing
Revenues, Margins and P&L

Cumberland Group
Accelerate Effective Performance Improvement
Co-lead project improvement teams (six sigma, lean….
Leadership/Sponsor’s Roles and Responsibilities
Strategic vs. Incremental: value identification/execution
Ways to obtain more improvement savings
Affiliations
Motorola, Mercer
University of Chicago and Loyola University
Publications
Six Sigma Black Belt Handbook
Six Sigma Financial Tracking & Reporting
Innovation: practical ways to make it happen (currently writing)
Michael Bremer Cumberland Group Hinsdale, IL 630-789-8262 direct 630-235-4210 cell [email_address]

I had a Million Dollars in Savings, but my P&L did not Change?

by Vijay_Bijaj on Feb 27, 2012

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I had a Million Dollars in Savings, but my P&L did not Change? Presentation Transcript