Show me the Money

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    Alivia Agnew

    I work in the automotive industry. In this, I have seen a LOT of potentially great Six Sigma projects, that would impact the quality of our work exponentially. The problem? There is just no way to calculate the savings. For example, if you fix a customer issue, there is no money in it other than the money you have already spent in the past. The future dollars spent are imaginary, therefore you see no HARD savings. So, you would spend WAY too much time trying to validate the savings for a project that had an impact on quality, but since there is no immediate dollar impact, you have to let that perfect opportunity slip through your fingers. Our upper management has made great strides in Six Sigma support over the last three years, but the fact remains that many times our efforts are wasted on just bringing in the money, instead of fixing processes. I love the idea of Six Sigma and I want to make it work in my facility. I just want some suggestions as to how get the good projects going.



    How many times have you put out the same fire in the past?  How much does it cost you everytime?  How much do you spend over the course of one year, fighting these issues?  Calculate your cost of poor quality, then develop and institute control plans using your six sigma tools so that you don’t re-visit these issues in the future.  There is a cost reduction to be realized by eliminating these “fixing” quality issues in the future.



    You are not alone. I have the same problem. How to calculate or show “hard” saving. If anyone out there know how to calculate, please help.



    This is a tricky one.
    In my company there is an algorithm which has been set up to generate revenues and profits from improved customer satisfaction (by eliminating measurable ‘things gone wrong’). This can deliver so called ‘hard savings’ without the Black Belt needing to remove headcount / eliminate huge scrap etc. It has been calculated empirically from past data.
    However, this is not very useful for those working outside the product environment (i.e. transactional projects). Our company seems a lot less focused on pushing the hard savings in these projects latterly, and is quite happy to bless projects which ‘make sense’ in terms of removing ‘noise’ and improving customer satisfaction.
    Perhaps this is a management issue for you……..
    All the best,


    Norbert Dickel

    This may be oversimplified, but hard savings must be  calculated, soft savings can only be estimated – otherwise, they would be hard.
    The key problem with estimation is … honesty. Hard savings are proven. Soft savings is believing. And where money is involved, how objectively can one estimate truly what these savings are, right ?
    There is really only one good way to estimate soft savings correctly. Have all people that can take sense about the topic in one room and launch a brainstorm discussion. No numbers. Just pro’s and con’s and evalutate the critical importance of these pro’s and con’s.
    Then, when you think you covered the issue completely, have everyone guestimate a minimum and maximum saving value per soft saving per year. Compute your project saving by first taking out the extremes (outliers) and computing the average.
    Then you know two things: the number you obtained is wrong, but it is likely the closest you can get.


    Kelly Maidman

    Try looking at:
    1) Cycle time reductions which directly impact billable hours to particular projects/programs (full-burden).
    2) FPY or RTY and resulting drop of total COPQ (% and $)in terms of Cost/Quality/Delivery (i.e. increase your margins)
    3) Before/after Capacity measurements for future growth opportunities (not immediately “hard”, but still useful)
    4) Partner with Suppliers and their sub-tier suppliers to improve their C/Q/D and contract a 50% split of resultant savings (i.e. translate into lower unit prices, premiums, etc…)-You should be able to develop dataand hard savings for these, even in the automotive realm.We are having great success with number 3.



    I agree.
    Do you want “quality” or “quantity” is what it comes down too. It would be nice to have the best of bith worlds



    Perhaps your finance dept could help you out by putting together for you a model that takes into consideration the savings in FTE, logged customer complaints/compensation payments, a bit of forecasting on future costs avoided (the imaginary dollars as you say).etc…if something needs fixing, the truth of the matter is that it costs money to your company and these monies will be saved if six sigma solutions are put in place. Ergo, there ARE savings to be had.
    Good Luck



    One of my past projects reduced the cycle time in paying Brokers commission who were bringing in new business. Didn’t significantly reduce cost (1.5 FTE saving) but increased Broker (customer) satisfaction enormously evidenced through feedback surveys before and after. Brokers stated more likely to place business with us. All this positive qualitative feedback went down really well with the Board – no need to necessarily show hard savings, keep your customers happy and therefore coming back for more.



    In addition, I would recommend to adopt the Balanced Score Card approach in order to convince management..  
    If you can link the issues you want to attack with customer satisfaction:  late deliveries or customer complaints on quality or…  I think it will be easier for you to get management’s approval on  your projects even if yo can not show immediate Hard Savings.
    Good luck



    I have done similar projects that were focused on improving quality and what we ended up doing was calculation COPQ. 



    Do you’ve the record of customer complaints/Service calls? Have you categorized them into Sub-Systems and Parts? You would know how many parts go to customer and how many failures you have seen over a period of time. That would help you manipulate their Failure rate. Using them you can arrive at the probability of Failure for the sub-system. (BASE LINE). This will also help you derive a transfer function for the Sub-System failure through the part/component Failure rate.
    D-FMEA is an integral part of all DFSS projects and there you would’ve the “Probability of occurrence” for the failure modes, accepted/approved by the cross-functional team. When you have fixed some problem, its occurrence comes down. Use the above transfer function to predict the Failure for your new design. Prove that this has come down.
    The other go is to test it and predict the failure, ’cause the number in FMEA is a kind of expert opinion,.
     Quantify this reduction with the money spent/call. I don’t see a simple solution to this and hope this helps.
    Good Luck..



    The sentence “Show me the Money” is used in all the courses of Red X Strategies (SHAININ TECHNIQUES) and is very easy calculate the savings if you solve a customer issue, all is based on the TOP FIVE PARETO, I work in an automotive industry too.



    It sound strange to me, because it is so familiar with management to talk about increasing of efficency = decreasing of cost or increasing of quality = decreasing of cost, both on direct cost of production than indirect cost of after sales service. At least every forecast and planning are done on imaginary work, not yet real. I don’t add other about the tools to work on COPQ, previous posts are well explanory.
    Rgs, Peppe


    Gerardo Caro

    Not all quality issues could be considered for Six Sigma Projects. Sometimes, there is quality issues which the solution or the root cause is very obvious. even using the common sense. My advice is be careful to fall on the mistake to accept to lead some Six Sigma Project where the solution is very obvious because you will waste your time and efforts and the impact on the Cost of Poor Quality won’t be showed in a signifficant way.
    I worked for the Automotive industry too. And in my company I’ve leadered Six  Sigma Projects focused to opportunity areas with high impact on the money savings like reduction of Finisehd Goods Inventories following the real tack time of the customer, Leveled Scheduling of the production for the assembly processes, Productivity improvement in assembly lines, etc..
    If you work in a Quality issue where the failure mode be elliminated and as a consequence you can reduce headcount of that process, then you can obtain hard savings with that project.
    Go ahead, Alivia. Do not lose the enthusiasm.
    Gerardo Caro.
    Six Sigma Black Belt



    Another way to look at this problem in a production condition:
    You all may have heard: We have time to firefight but we no time to solve our problem permanently.
    Why is that so?  Rarely ever anybody calculates the cost of firefighting. These costs are paid anyway.
    To my experience, the biggest savings in problem solving come from
     1.  yield improvements (included in COPQ calculations)
    2.  free up capacity of the – often very busy – fire fighters / know how owners in your organization and use them for some other profitable activities.
    Practical calculation:
    e.g. reducing ppm reject rates from 5000 ppm to 500 ppm does not result in much product related savings
    Looking at the cost to firefight each single problem adding up to the 5000 ppm you may well find values of a few 1000…10000$ (just think about all the hours spent by all the people involved in meetings) for each one.
    Reducing the occurance of ‘fire’ or ‘noise’ conditions reduces these costs accordingly
    Add yield improvement – which always comes with problem solving – and the reduced cost of firefighting and you will very often find amazingly high $ values to save.
    The main problem to transafer this approach to transactional problems is most often the lack of data.



    Wow.  A lot of the posts on this thread are really old.  But let me throw in my 2 cents worth.
    This suggestion of a brainstorming session to estimate consensus savings makes a lot of sense to me, where you don’t have hard data.  My projects have tended to be transactional, and coming up with hard savings is always an issue.  One lesson that I have learned is that, while “show me the money” is very important, you should not get so distracted by the business case that it becomes a stand-alone six sigma project unto itself.

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