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Return on Deployment

Six Sigma – iSixSigma Forums Old Forums General Return on Deployment

  • This topic has 8 replies, 5 voices, and was last updated 16 years ago by J.
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  • #34096

    Rj
    Member

    What return can we expect by deploying 6 Sigma? I am interested in views based on this community’s experience.
     
    We are a $38M mature company and like most we have employed many improvement techniques over the years; we always strive to improve. We manufacture and assemble 3 product lines; one line has 2000 end units with 100 components each and two lines have 200 end units and 30 components each. Our scrap is about 1.5% and warranty return is about 0.5%.
     
    Thanks for any input.

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    #93555

    Praveen Gupta
    Participant

    RJ:
    Is your company profitable? If yes, at what %?
    Praveen

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    #93558

    Rj
    Member

    Praveen, that’s a good question; I’ll have to get back to you.

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    #93566

    Rj
    Member

    Praveen, our profit is about 15%.

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    #94048

    Geoff Jamieson
    Participant

    In my recent experience with defects we were able to define what our quality problems were, (we found several key problems) isolate them and through analysis (cause & effect diagrams), begin redcuing the number of defects. In per centages we were at approximately the same number as you (1.5 – 2.0%) and were able to reduce defects down to .1 – .2% range. This was a significant achievement to our process, and reduction is scrap savings. The dollar amount can be staggering. (in your case 1.5% 0f total sales) In our case we experienced losses totalling several hundred thousands of dollars for each type of defect. Until you analyze the problem (defects) and the root causes (variables, x’s), and then place a dollar amount on the cost then you will be able to see the potential savings and benefits of Six Sigma. Chart out the defects weekly & monthly and perform a historical chart over time and see if your defects are increasing, staying the same, or decreasing. In my case they were escalating at an alarming rate, almost doubling each year. I went back three years and charted the defects. (yes, it was a laborius excercise but it was worthwhile) We were not aware of the magnitude of the problem until we charted it out on a pareto.
    In analyzing our process we were able to replicate the project into several other areas of the same process (several different type of defects) and save even more money.
    With the use of pareto or run charts we are able to track our weekly and monthly progress. We also use the upper control/lowercontrol charts (UCL & LCL’s) which your quality department should already be utilizing. 
    In a company of your size and with a defect rate of 1.5% you should still be able to make improvements and save significant dollars.
    Keep us informed of your game plan, and how it turns out. You have nothing to lose by trying the Six Sigma methodology, only time and effort, and everything to lose if you don’t because the defect rate will not go down on its own. Try it.
    You did not mention what your improvements were over the years and were they effective, or how effective were they, and how you determined the problem and causes? Did you calculate the savings from each change in the process? Did you sustain the gains after the changes were implemented? Your past analysis should provide clues to your fiuture analysis. Did the past changes incorporate Six Sigma methodology? If not, make notes of the current use of Six Sigma methodology and how different the results are using it, as opposed to not using it in your past analysis? You may be surprised to see the difference. Six sigma tools are very analytical, and very helpful.
    Good luck.  Hope my reply helps.
     
    p.s. my current project is reducing the number of injuries and ergonomic issues on a production line. The process incorporates a two man team, actually several independent teams, who remove heavy parts off a conveyor line and place the parts onto a table for packaging. Has anyone else studied ergonomic issues and injuries as part of a six sigma project? If so please let me know. My email address is @ford.com">gjamieso@ford.com
    p.s the goal is to reduce injuries by 70%, and medical costs are the benefit in dollars.
    Thank you. 

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    #94056

    Rj
    Member

    Geoff, thanks for your input. So, depending on your product, it might not be unreasonable to expect a 1% reduction from 1.5% in scrap; that would be a significant number. Our scrap dollars as a percent of sales is declining; but of course we have problematic reasons for scrap.
     
    We have been using Crosby’s QES system to train everyone periodically and have formed work teams in each area that use a 5-step process to address problems. Our process is similar to the DMAIC model but we do tend to “backslide” when we move on to other issues. Cross-functional teams that are formed to address specific issues in particular have this problem.
     

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    #94059

    Geoff Jamieson
    Participant

    I would expect a minimum of a 1% reduction in defects. The better your analysis and problem solving ability your team should be able to isolate the causes, and lower the defect rate (over time) to a point below .5%. Six Sigma methodology looks for a 70% reduction in defects as a start, and continue your progress for further reductions during the control phase. We are now in the third month of our control phase and still see the defect count reduced monthly. Our January 2003 defect rate was almost 800 pieces. December’s rate was under 100 pieces. The benefit of Six Sigma is that it analytically shows you the data, and provides a roadmap of how to achieve the savings.
    My part costs were averaged at $100 each. We were scrapping nearly 10,000 parts per year due to three major defect areas. We have reduced our defects from 1.5% to under .3% and still declining.
    Calculate the cost of each scrap part, average the cost and determine your savings for each .1% reduction in scrap.
    You can write to me directly at @ford.com">gjamieso@ford.com if you have further comments, or questions. Thank you.
     

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    #94074

    SSS
    Member

    Dear RJ,
    My experience deploying Six Sigma as deployment leader (for two companies) varies significantly in terms of the ROI. One company returned the entire deployment cost the first year. The second needed two years to return the initial investment. Here’re my two cents:
    First, if your projects are well-defined (or half solved), then your financial benefit could be realized without delays. If you don’t spent time defining & scoping projects, then you would have to deal with longer than expected cycle times, affecting directly the financial forecast.
    Second, it depends on your financial management & reporting system. For instance, if your company inputs the cost of capital into the ROI equation, you need to deduct salaries, training, etc from each Black Belt project’s ICOPQ. This is a very rigorious approach.
    Third, you need to define the word “deployment” and “return on Deployment.”  Some companies believe that “deployment” means “training.”  What is the definition of deployment in your company? Infrastructure design & implementation, launch, etc.?
    Finally and more importantly, if your projects are selected based on a financial/operational due dilligence, then your ROI would/could improve…. this is not necessarily true for Customer Experience projects in the short term. 
    If your CFO is asking you this question, then a safe answer is zero ROI the first year.
    Hope this helps.

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    #94092

    J
    Member

    The answers given by geoff and SSS are complete and they have given you a overall picture as to how the methodology would help you, but since you have talked about team work let me share my experience with you on one of the very popular tools called Nominal group technique combined with Multi voting. This is simply great and you will only understand its power when you use it religiously. Try this and give your feedback.
    Thanks
    Sri

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