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10 Cost Reduction


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Cost Reduction

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10 Cost Reduction

  1. 1. Cost reduction Through quality improvement
  2. 2. Quality problems <ul><li>The costs associated with poor quality are due to: </li></ul><ul><li>Sporadic problems – Sudden problems, or adverse change in the status quo, which requires remedy through restoration of the status quo. </li></ul><ul><li>Chronic problems – A long-standing adverse situation, which is remedied through changing the status quo. </li></ul>
  3. 3. Quality problems
  4. 4. Quality problems <ul><li>Difference between sporadic and chronic problems: </li></ul><ul><li>Sporadic problems are solved through Quality Control; whereas chronic problems are solved through Quality improvement. </li></ul><ul><li>Sporadic problems are dramatic and must receive immediate attention. Chronic problems are gradual, because they occur over a longer time window. </li></ul><ul><li>Chronic problems are often difficult to solve than the sporadic problems. They are, at times, even difficult to detect, because they are accepted as inevitable. </li></ul>
  5. 5. Quality problems <ul><li>Sporadic problems require a ‘fire fighting’ approach and hence may get more attention. </li></ul><ul><li>More savings, however, can be generated by targeting on chronic problems. </li></ul><ul><li>Kaizen principles are applicable to both types of the problem. </li></ul><ul><li>For chronic problems, it prescribes achieving better levels of performance each year. </li></ul><ul><li>For sporadic problems, it means taking corrective action on periodic problems. </li></ul><ul><li>For overall process refinement, it tells us to reduce process variation around a target value. </li></ul>
  6. 6. Chronic problems <ul><li>Addressing chronic quality problems achieves a breakthrough to an improved level of quality. </li></ul><ul><li>This is best achieved by selecting specific projects one at a time and focusing on these problems individually. </li></ul><ul><li>For that one needs to set up a project approach wherein the need for improvement is proved, projects short-listed, and project teams organized. </li></ul>
  7. 7. Chronic problems <ul><li>For the selected project, we – </li></ul><ul><li>Verify the project need and mission </li></ul><ul><li>Diagnose the causes </li></ul><ul><li>Provide a remedy and prove its effectiveness </li></ul><ul><li>Deal with resistance to change </li></ul><ul><li>Instituting controls to hold the gains. </li></ul>
  8. 8. Solution methodology <ul><li>Prove the need </li></ul><ul><li>Convincing the managers that the quality issue is significant enough to require a new approach. </li></ul><ul><li>Chronic problems often require substantial time and resources. </li></ul><ul><li>To gain approval: </li></ul><ul><li>Collect factual data to show the size of the quality problem. Studying the costs of poor quality might be useful. </li></ul><ul><li>Show the benefits possible from an improvement program and use this to justify the resources required. </li></ul><ul><li>Sort out the “language” issue. </li></ul>
  9. 9. Solution methodology <ul><li>Identify projects </li></ul><ul><li>Nomination of the project : It can come from various sources (like shop-floor data, workers, government regulations etc.) </li></ul><ul><li>Project short-list: Pareto principle can be applied to sort out important projects and accordingly priorities can be established. </li></ul><ul><li>At times, specific quantifiable measure could be developed to sort projects based on its value on that measure. </li></ul>
  10. 10. Solution methodology <ul><li>Organize project teams </li></ul><ul><li>A project team usually consists of persons drawn from multiple departments. </li></ul><ul><li>The team meets periodically and members serve part time in addition to performing their regular functional jobs. When the project is completed, the team disbands. </li></ul><ul><li>A companywide problem may require several teams working on various aspects of the problem. </li></ul>
  11. 11. Solution methodology <ul><li>Verify the project need and mission </li></ul><ul><li>Even though the project was selected because it is considered “important,” it is useful to verify the numbers again. </li></ul><ul><li>Also essential that scope of the project be discussed and accepted. </li></ul><ul><li>Typically, scope should be such that project is completed within 6 months. </li></ul>
  12. 12. Solution methodology <ul><li>Diagnose the causes </li></ul><ul><li>Process of studying the symptoms of a problem and determining their causes. </li></ul><ul><li>Beginning of the diagnosis process is data collection; and end is an agreement on the causes. </li></ul><ul><li>Prevalent belief is that most defects are caused during manufacturing and are worker controllable. Its incorrect on both counts! </li></ul><ul><li>Two journeys are required for quality improvement: </li></ul><ul><li>Diagnostic journey: from symptom to cause </li></ul><ul><li>Remedial journey: from cause to remedy. </li></ul>
  13. 13. Solution methodology <ul><li>Diagnose the causes </li></ul><ul><li>Steps involved: </li></ul><ul><li>Description of symptoms. </li></ul><ul><li>Quantification of symptoms. </li></ul><ul><li>Formulation of theories. </li></ul><ul><li>Testing of theories – both management- and worker- controllable theories. </li></ul><ul><li>Design and analysis of production experiments. </li></ul>
  14. 14. Solution methodology <ul><li>Provide a remedy and prove its effectiveness </li></ul><ul><li>Choice of alternative: Diagnostic journey may throw wide variety of causes of the symptoms. Remedial action responds to the findings of the diagnosis. </li></ul><ul><li>An essential criteria is that both company and customer costs be optimized. </li></ul><ul><li>Cost optimization should focus on costs of poor quality, facilities usage, material usage etc. </li></ul><ul><li>On the customer side, focus should be on those remedies where value is added without further costs. </li></ul>
  15. 15. Solution methodology <ul><li>Provide a remedy and prove its effectiveness </li></ul><ul><li>Proving effectiveness – </li></ul><ul><li>Preliminary evaluation of the remedy through simulation. </li></ul><ul><li>Final evaluation under real-world situation. </li></ul><ul><li>It is useful to communicate the remedy to </li></ul><ul><li>Others who may face similar situation </li></ul><ul><li>Those responsible for planning future products and processes. </li></ul>
  16. 16. Solution methodology <ul><li>Deal with resistance to change </li></ul><ul><li>Be aware that we could be dealing with a culture that may differ from our own. </li></ul><ul><li>Discover what will be the social effects of the proposed technological change. </li></ul><ul><li>Rules to introduce change: </li></ul><ul><li>Provide for participation. </li></ul><ul><li>Establish the need for the change. </li></ul><ul><li>Provide enough time. </li></ul><ul><li>Treating people with dignity. </li></ul>
  17. 17. Solution methodology <ul><li>Deal with resistance to change </li></ul><ul><li>Dealing directly with the resistance. </li></ul><ul><li>Working with recognized leadership of the culture. </li></ul><ul><li>Reversing the positions. </li></ul><ul><li>Keeping the proposal free of excess baggage. </li></ul>
  18. 18. Solution methodology <ul><li>Institute controls to hold the gains </li></ul><ul><li>Providing for a process capable of holding the gains under operating conditions. </li></ul><ul><li>Establishing operating procedures and training the operating forces to use the new procedures and to meet the standards. </li></ul><ul><li>The process changes should be irreversible. </li></ul><ul><li>Providing for systematic means of holding the gains – process of quality control. </li></ul>