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Why Six Sigma?

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Copyright NN, Inc. 2007 Company Confidential

Oursurvivalis 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.

DEFECTS

QUALITY

CYCLE TIME

COST

PRICE

DELIVERY

Do

Need

CUSTOMER

SUPPLIER

The Customer Supplier relation

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Profit

TotalCost to

Produce

or

Provide

Profit

Waste

(COPQ)

TheoreticalCosts

Cost of

Doing

the

Right

Things

Rightthe First

Time

a. b. c.0

ProfitProfit

Waste

(COPQ)

COPQ

Theoretical

COSTSTheoretical

COSTS

Competition Drivesa Lowered Price

d.

We must reduceCOPQ to restorethe profit margin

Note: COPQ = Cost Of Poor Quality

Total Product or Service Price to Customers

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WHAT IS IT?

Costs that are associated with Internal Failure Costs

External Failure Costs

Appraisal Costs Prevention Costs

Lost Opportunity Costs

Cost Of Poor Quality

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Cost Of Poor Quality

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 RejectDisposition

Purchased Material ReplacementCosts

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 toManufacturing

Rework and Repair

Reinspection/Retest Costs

Failure to Scale Up

Poor Characterization

Poor Optimization

Poor Communication

Poor Documentation

INTERNAL FAILURE COSTS:

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Cost Of Poor Quality

Customer Complaint Investigation

Returned Goods Retrofit Costs

Warranty Claims

Recall Costs

Liability Costs

Penalties

Customer/User Goodwill

Other External Failure Costs

Failure costs occurring after product/service delivery or shipmentEXTERNAL FAILURE COSTS:

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Cost Of Poor Quality

Purchasing Appraisal Costs

Incoming Inspection and Test

Measurement Equipment

Qualification of Supplier Product

Source Inspection and ControlPrograms

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 andSpare Parts

Review of Test & Inspection Data

Special Tests

Process Control Measurement

Laboratory Support

Costs associated with measuring, evaluating, or auditing productsor services to ensure quality and performance is maintained

APPRAISAL COSTS:

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Cost Of Poor Quality

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 DataReview

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

The costs of all activities specifically designed to prevent poorquality in products and services

PREVENTION COSTS:

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Cost Of Poor Quality

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

LOST OPPORTUNITY COSTS:

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0

510

15

20

25

30

35

40

45

1 2 3 4 5

Sigma Rating

COPQ(%Sa

les)

There is a correlation between a companys COPQ

and the rating of its key processes

Why Six Sigma ??

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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.

The Inspection Exercise

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Observed Number of Fs

0

1

2

34

5

6

7

8

9

10

22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Peo

ple

Inspectors: Expected: Total Expected:

# 0 X # = # 0

Observed:

# 0

Ave. Effiency per Inspector:

% 0.00%

36

Results of the Exercise

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Note: All sigma values reflect a 1.5 shift

1 2 3 4 5 6 7 8 9 10 11

10

100

1000

10000100000

1000000

Escaping

PPM

Number of Consecutive Inspectors

Example: If the likelihood of

detecting the defect is 70% and we

have 10 consecutive inspectors withthis level of capability, we would

expect about 6 escaping defects out

of every 1,000,000 defects produced.

99% 90% 80% 70%

1 2 3 4 5 6 7 8 9 10

Number of Consecutive Inspectors

7.0

6.0

5.0

4.03.0

2.0

1.0

0.0

99% 90% 80% 70%

Example: If the likelihood of

detecting the defect is 70%, it wouldrequire about 10 consecutive inspectors

to have a Six Sigma level of confidence

that the defect will be detected.

Sigma

Level

The Impact of Added Inspection

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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

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 defectis present) is about 54%.

2 4 6

Number of Defect Opportunities

Likelihood

of Detection

Note: All sigma values reflect a 1.5 shift

The Impact of Complexity on Inspection

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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.

No Defect

LS US

Step X

No Defect

LS US

Step Y

Test

Analyze

Fix

Defect Defect Defect Defect

Test

Analyze

Fix

} }* *

Product

How Process Capability Impacts Cycle Time

and Resource Allocation

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$14.5 Billion in Warranty Costs 2004Audi - 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

Examples of effects of variation

Autom ot ive Industry COPQ*

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Quality problems 2005 Model 21 supply to Los Angeles

Police Department Misfires, followed by ineffective

Corrective Action 1600 Officers informed to switch

FirearmsIndustry Week March 2006

Examples of effects of variation

http://www.glock.com/home.htmhttp://www.glock.com/home.htmhttp://www.glock.com/body_index.htmhttp://www.glock.com/home.htm

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Liverpool, England Manufacturer of Vaccine 2004 contamination led to destruction of 52 million doses

50% of U.S. supply affectedIndustry Week March 2006

Examples of effects of variation

http://www.chiron.com/index.html

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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 trulylean workplace.

Six Sigma promotes data analysis, ensuring decisions are welljustified.

Six Sigma provides bottom line results, improving the condition of thebusiness.

Six Sigma utilizes the team approach to process improvement, gainingemployee participation, knowledge, and support.

Six Sigma is a continuous improvement process, striving ever closer toperfection and allowing no complacency with success.

Why Six Sigma?