Why Six Sigma?

The Customer Supplier relation

CUSTOMER
DELIVERY CYCLE TIME PRICE Do COST QUALITY DEFECTS Need

SUPPLIER
Our survival is linked to our companys growth. Our companys 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.
Company Confidential

Copyright NN, Inc. 2007

Total Product or Service Price to Customers

Profit

Profit Waste (COPQ)

Competition Drives a Lowered Price

Profit
Waste (COPQ) COPQ Profit
We must reduce COPQ to restore the profit margin

Total Cost to Produce or Provide

Theoretical Costs

Cost of Doing the Right Things Right the First Time

Theoretical

Theoretical

COSTS

COSTS

a.
Note: COPQ = Cost Of Poor Quality

b.

c.

d.

Copyright NN, Inc. 2007

Company Confidential

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
Copyright NN, Inc. 2007 Company Confidential

Cost Of Poor Quality

INTERNAL FAILURE COSTS:
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

Copyright NN, Inc. 2007

Company Confidential

Cost Of Poor Quality

EXTERNAL FAILURE COSTS:
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

Copyright NN, Inc. 2007

Company Confidential

Cost Of Poor Quality

APPRAISAL COSTS:
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

Copyright NN, Inc. 2007

Company Confidential

Cost Of Poor Quality

PREVENTION COSTS:
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

Copyright NN, Inc. 2007

Company Confidential

Cost Of Poor Quality

LOST OPPORTUNITY COSTS:
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

Copyright NN, Inc. 2007

Company Confidential

Why Six Sigma ?? There is a correlation between a companys COPQ and the rating of its key processes
45 40 35 30 25 20 15 10 5 0
1 2 3 4 5

COPQ (% Sales)

Sigma Rating
Copyright NN, Inc. 2007 Company Confidential

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.

Copyright NN, Inc. 2007

Company Confidential

Results of the Exercise

Observed Number of Fs
10 9 8 7 6 5 4 3 2 1 0 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

People

Inspectors:

Expected:

Total Expected:

36

Observed:

Ave. Effiency per Inspector:

#
Copyright NN, Inc. 2007

%
Company Confidential

0.00%

The Impact of Added Inspection

Note: All sigma values reflect a 1.5 shift
1000000 100000 10000
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.

Escaping PPM

1000 100 10 1 7.0 6.0 5.0 4.0

99%
2 3

90%
4
99%

80%
5 6
90%

70%
7 8
80%

10
70%

11

Number of Consecutive Inspectors

Sigma Level

3.0
2.0 1.0 0.0 1 2 3 4 5 6 7

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.

10

Number of Consecutive Inspectors

Copyright NN, Inc. 2007 Company Confidential

The Impact of Complexity on Inspection

Likelihood of Detection
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 10 100 1000 10000 100000 1000000 2 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%. 4 6

Note: All sigma values reflect a 1.5 shift

Number of Defect Opportunities

Copyright NN, Inc. 2007

Company Confidential

How Process Capability Impacts Cycle Time and Resource Allocation

Step X
LS US LS

Step Y
US

Product
No Defect No Defect

Defect

Defect

Defect

Defect

Test
Analyze

}*
Company Confidential

Test
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.
Copyright NN, Inc. 2007

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

Copyright NN, Inc. 2007

Company Confidential

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

Copyright NN, Inc. 2007

Company Confidential

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
Copyright NN, Inc. 2007 Company Confidential

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.
Copyright NN, Inc. 2007 Company Confidential