iSixSigma

Phelps Dodge – Quest for Zero

Phelps Dodge is one of the world’s leading producers of copper. In 2001 they began an initiative called “Quest for Zero” that involves Lean, Six Sigma and other tools. Today, they continue in their Quest for Zero and have seen significant savings.

“Quest for Zero – as in zero accidents, zero production variances, zero environmental mishaps, and more – is at the heart of Phelps Dodge remaining competitive and a leader in worldwide mining and industry. The effort is formalized in our Quest for Zero program and its ambitious goals. The program incorporates Six Sigma management tools working toward a stretch goal of 60-cents-per-pound implied unit cost of production for copper. The Quest for Zero process incorporates hundreds of individual projects.” Phelps Dodge Website

Savings and Benefits

“It is especially important during times as prosperous as these to remember our business is cyclical. We must continue to be vigilant in cost control so that Phelps Dodge not only prospers in business upturns but continues to progress during the downturns. To that end, we have made our Quest for Zero enterprise performance system a way of life. Employees are using the training, systems and processes learned in Quest for Zero to create sustainable cost reductions and operating improvements.

“In 2001 we implemented a company-wide, comprehensive lean-production program, called Quest for Zero (QFZ). QFZ is a comprehensive continuous improvement process whereby we strive to achieve zero accidents, zero lost-time injuries, zero defects, zero environmental discharges, improve both product and process quality, apply technology in new and innovative ways, increase yields and increase revenues.

“The success of the business improvement teams we formed to execute our QFZ program led us in 2003 to reorganize our North American mining operations into what we call North America One Mine. This organizational plan has been designed to enable us to shift QFZ from a project-based approach to a process-focused approach, i.e., emphasis is on driving optimization through common site processes and sharing of best practices. We believe QFZ is an important foundation for our operations to be competitive throughout the business cycle.” 2004 Annual Report

“Phelps Dodge announced in October 2001 that it was commencing Quest for Zero (QFZ), a comprehensive, lean-production program, designed to, among other things, improve operating income by a targeted $250 million annually. QFZ encompasses both the October 2001 program and the $150 million cost improvement program announced in May 2001. The Company’s stretch goal was to achieve these combined annual operating income improvements of $400 million by the end of 2003 when compared with the results that were then expected for 2001.

“In order to achieve the full $400 million target, PDMC chartered business improvement teams to drive performance improvement projects and best practices. The elimination of variance and waste, and control of all critical processes are key factors in this process. QFZ was also designed to foster the rapid transfer of best practices to all business units…Key elements of QFZ going forward included six-sigma quality programs, technology innovations, global procurement strategies and improved operating practices.

“During 2003, we achieved $330 million in improvements, bringing total improvements since the program was announced in 2001 to $596 million. This excludes improvements in the reduction of working capital. In the fourth quarter of 2003, we achieved $91 million in improvements bringing the current annualized run rate to approximately $365 million, which is approximately 91 percent of the $400 million stretch goal.” 2003 Annual Report

“We introduced Quest for Zero in 2001 and realized $55 million in annual improvements. During 2002, we gained an additional $211 million in improvements, ending the year at a run rate approximating $250 million. Quest for Zero contributed substantially to our significant reduction in implied unit cost of copper production.” 2002 Annual Report

Articles and Links

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Quest for Zero – A overview of the initiative on the Phelps Dodge website

Mining Company Performance Improvement Programs and Results, Norbridge Inc. Management Consulting, Summer 2003

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