1

TWO DAY PROGRAMME ON

LEAN
&
SIX SIGMA
MANUFACTURING
PRACTICES

Faculty: Prof. A. Rajagopal,
HEAD, SQC&OR UNIT
INDIAN STATISTICAL INSTITUTE
Ph: 0422-2441192
2
STATISTICS AS A KEY TECHNOLOGY IS NOT MERELY AN
OPERATIONAL TOOL FOR PROFITABLE BUSINESS. BUT AS A
POWERFUL ACCELERATOR AND CATALYST FOR ECONOMIC
DEVELOPMENT
PROF: P.C.MAHALANOBIS
3
ABOUT THE INSTITUTE
PIONEERING QUALITY MOVEMENT IN INDIA BY
SQC & OR DIVISION OF ISI
-70 years of existence as a centre of excellence promoting
statistics as a key technology.
- One of the worlds leading organization recognized as an
Institute of National Importance.
- At the Initiation of founder Prof. P.C.Mahalanobis,
Dr.Walter Shewart visited the institute in 1947 to introduce
SQC in the industries particularly in the textile sector in a
significant way.
Successfully demonstrated SQC / SPC not only as operational
tool for profitable business but also as a powerful accelerator
and catalyst for economic development.
4
-Every year about 100 organizations are benefited in
following this approach in different sector, Private Public
Government, around the country. Over 10,000 projects has
been carried out so far.
- Now Coimbatore Unit is introducing this approach to small
scale sector also based on the widespread experience in the
application of Textile sector.
Objective:
+ Improve Quality
+ Reduce Waste / Rework / Rejection
+ Increase Productivity
+ Best utilization of resources including time.
5
6
LONG LIFE WITHOUT QUALITY
(OR)
QUALITY WITH GIVEN LIFE













7
Quality
Time
Price
PPM
Competitive
Edge
Willingness to
pay
TO BE THE FIRST AND FAST PLAYER
8
TODAYS BUSINESS ISSUES:

Quality and price are two axis of business so long. The Third axis
emerged as -"THE TIME"- the factor taking leading position in business.
SPEED" is the need of hour. To be FAST and to be FIRST has become the
challenge".

Conventional Business approach is moving towards higher production
(Quantity), which some time affects the Quality and may force to sell in
discounts or as seconds, and to carry out "High Inventories

Quality in time" at the "least cost" is the mission statement, moving
ahead in this changing environment.

"Statistical Methodologies" -that study the uncertainties, Analytical
approach that economies the cost and which minimizes the waiting time/ idle
time through such No investment- No cost tools enabled to maximize the
return on valued resources.
9
TAKING OF THE BLINDERS

In strategy it is important to see distant things as if
they were close and to take a distanced view of close
things

Miyamoto Musashi
The Book of Five Rings
10
COMPETI TI VE REQUI RES I NNOVATI ON
No existing market share is safe today, no product life is
indefinite. Not only is this true for high technology, but it
is also true for all consumer products. Competition will
tear away market niches and technology advantages from
the established business through the weapon of
innovation. Companies will become merely a shadow of
their glory days or will vanish if they do not find a way
to re-create their market success through a steady stream
of innovative products and customer oriented solutions.
11

I NNOVATI NG FOR COMPETI TI VENESS
Innovation requires the planned abandonment of established,
familiar, customary or comfortable ways of working whether in
product or services, competencies or human relationships or the
organisation itself.
Business
Assessment
Change
Management
Break through
Planning System
Strategic
Decision
Making
Conclusion: Innovation means that you must be organized to allow
constant change.
12
13
TIME CRESIS MANAGEMENT:
Crisis involves two aspects. The cresis created by factors within ones
control and such crisis can be avoided. Then those crisis created by factors
beyond ones control and have to be faced.
Major cresis can be avoid, if we act upon a situation at the right time.
More often than not, there are two tendencies that present us from acting at the
right time.
- Postponement of the unpleasant
-Non recognition of the problem
PROCRASTINATION CREATES CRESIS:
The tendency to do what ii easy, trouble free, and pleasant and leave for the
future the issues that are difficult, Thus the difficult issues keeps piling up. They
become irritants. We do not want this because it remind us of our inefficiency
and incapacity to face unpleasant issues. A thing undone always remain with us.
14
DO THE UNPLEASANT FIRST:
We can not expect every thing in life to be pleasant. Like the two
sides of the coin, the unpleasant always goes with the pleasant.
The one who does not postpone making a decision, right or wrong,
to fulfill a responsibility, that person alone can be successful.
Postponing something because it is unpleasant is wrong. It has the
potential to create a crisis and when it occurs, we will be inadequately
equipped to face it.
RECOGNIZE THE PROBLEM AND ACT:
We get used to the problem so much so chronically, that we dont recognize
it as a problem. When there is a problem, we tend to say, There is no
problem, Everything will be alright. But it will not be all right.
15
MURPHYS LAW:
What can go wrong, will go wrong. The possibility of something
going wrong is much greater than its going right. One can act upon a
problem, however small it is, only when the problem is first accepted. Action
presupposes a decision, a will, and the will can exists, only when there is
recognition.
KARMA:
Everything will be all right if my karma is good. Karma does not
work that way, the theory of karma is not fatalism. It does not justify passing
the buck. It pins down the responsibility upon us.
so accept problem as it occurs.
16
DEALING WITH THE ISSUES:
For any business man, interference from competitor will be a problem.
This is not created by him. This has to be faced. This requires inner strength. It is
like learning to drive a car. The instruction cannot reproduce all possible traffic
situations. The learner has to deal with particular situation as they occur.

EVERY EFFECT IS A CALCULATED RISK:
When you make a business projection for the following year, factors
like potential demand, availability of raw material, changes in tax structure,
shrikes are taken in to account.
Since every intelligent effort involves a calculated risk, only two results
can be expected from every effort Success to different degree Failure to
different degree.
With every failure, a person seems to become more and more frightened
and a time comes when are is not able to act at all. So it is important that we are
prepared for failure in our effort, because success may not always come. Our
power are limited, and there are factors beyond our control.
17
ACCEPT LIMITATIONS:
To be for failure, it is necessary to recognize ones limitations. Our
knowledge is limited and so we can not avoid many situations from occurring-
otherwise we could avoid all accidents.
sometime we have the knowledge but our power is limited and we
feel helpless . If you permit yourself to be depressed for reasons you seem to
have no control over, you become helpless and the outside factors will make
you more and more inefficient and ineffective.
Depression is a reaction. In action, you have freedom to exercise your
will.
Acceptance of facts is a precondition to an action, Non acceptance is
an ideal condition for reaction in fact Non- acceptance itself is a reaction. Non
acceptance does not alter the facts- the reaction creates a chain of reactions.
SO ACCEPT THE FACTS AND KEEP ACTION.
18
TIME PRIORITIZATION:
Water, Tumbler, pebbles, sand, stones, grane . All can be accommodated, if it is
planned in priority while filling the tumbler without pilferage. We can find time for
anything, provided we have passion for it.
GOALS MUST BE CLEAR:
Nobody works for failure. You do not have to make an effort to achieve a failure.
Sometimes people invest in failing business for tax purposes. It is not a real failure. It is a
calculated achievement.
CORPORATE MANAGER:
BE CLEAR ABOUT GOAL.
What is to be accomplished. What is expected out of me. I must also know, what I
expect of those who works for me.
PRIORITIZING GOALS:
-With out conflict
-Based on resources (Time, Manpower, resources)
-Be concern with immediate plan without getting bogged down by the scale of
the project.
19
What ever a leader does, other people do. The very thing.
What ever the upholds as authority, an ordinary person
follows that.
- BHAGAVATGITA.
KRISHNA TO ARUGUNA:
If you runaway from this battle field, all others will also
follow you. If you fail to do what is to be done, others will also do
exactly that, because you are leader, whether you like it or not.
- Set our Example.
20
21
Lean:

A systematic approach to identifying and eliminating waste
{non- value-added activities) through continuous improvement in
pursuit of perfection by flowing the product at the pull of the customer.

Lean champion:

Subject matter expert in the tools of lean typically chosen to
lead lean training, lean projects, and lean transformation.

Lean enterprise:

Any organization that continually strives to eliminate waste,
reduce costs, and improve quality, on-time delivery, and service levels.
Understanding lean
22
Lean production:
The opposite of mass production.
Muda:

A Japanese word, usually translated as waste, that refers to
those elements of production that do not add value to the product.
Takt Time:

The available production time divided by the rate of customer
demand. Takt time sets the pace of production to math the rate of
customer demand and becomes the heartbeat of any lean system.
23
Example for takt time
Time Available Minutes
Shift 480
Breaks -10
Lunch -20
5S -10
Meetings -5
Changeover -220
Maintenance -5
Other -0
Total minutes 210
Total seconds 12600
Demand
Min 900
Avg 1080
Max 1800
Takt time (Min) =
12600
900
Takt time (Avg) =
12600
1080
Takt time (Max) =
12600
1800
Takt time
Min 14.0
Avg 11.7
Max 7.0
24
25
Everyone participates
Anything is open to question
Look at issues from larger perspective
Ideas from anyone is respected
Talk to the ideas generated ; not the person
No complaining unless accompanied with
solution and action plan
No blaming
Ground Rules
26
Quality . . . is the next opportunity for our Company to
set itself apart from its competitors . . .
... Dramatically improved Quality will increase employee
and customer satisfaction, will improve share and
profitability, and will enhance our reputation.
... [Six Sigma] is the most important training
thing we have ever had. Its better than going
to Harvard Business School.
J.F. Welch
Leadership Vision
27
A Process Is A Collection Of
Activities That Takes One Or
More Kinds Of Input And
Creates Output That Is Of
Value To The Customer
Definition of a process
28 6
#2: When convinced of
the value of thinking in
terms of processes, most
people still dont think in
terms of processes
#3:The word process
generates fear and
resistance.
Processes
All activity takes place in terms of a process.
The quality of the process determines the quality of the output.
Shocking lessons
#1: Most people do not think in terms of processes. They
would rather think terms of isolated events.
29
Black Belt Projects
Supplier
Quality
Voice Of The Shareholder
(Profitability Analysis)
Voice Of The Customer
(Surveys)
Stakeholder
Requirements
Customer Requirements Prioritization
Core Processes
And Output Measures
Internal Processes And Output Measures
Key Subprocesses And Input Measures
Other Stakeholders
Employees
Lenders
Regulators
Strategic Focus
30
Pick-Up &
Delivery
Order/
Leasing
Billing
Customer
Service
Equip.
Mgmt.
Core Process
(Level I)
Subprocesses
(Level 2)
CSR
Qualifies
Customers
Needs
CSR Enters
Case In CIS
Branch
Schedules
Repair
Servicer
Fixes
Problem
CSR Verifies
Customer
Satisfaction
Customer
Calls For
Repair
CSR
Completes
Case
Subprocesses Through
Microprocesses
(Level 3 And Below)
Levels of Process
31
The Dimensions Of Process Focus
Management
Process Management
3 Dimensions of Process
32
BPMS
What is BPMS?
A nine step methodology designed to create
ongoing accountability for managing entire
cross-functional processes to satisfy process
goals
33
Why BPMS ?
Proven methodology to optimize process
performance

Establishes value-added metrics to assess
process performance takes the guesswork out
of how a process is performing
BPMS
34
Step 1: Create Process Mission
C O P I
Process Mission Statement





Key Process
Verbatim Issue Requirement





Purpose:
Importance:
Boundaries:
Process Goals:
Process Owner
Beginning Point End Point
S
Proc.
CTQ Rqmt Output Proc Input
Operational Definitions
Data Owner
Definition
Unit
How Many
DPU
+
Process Management System





Clarify Operational
Data Definitions
Validate
System
Data
Display
J a n
F e b
M a r
A p r
M a y
J u n
J u l
A u g
S e p
O c t
N o v
D e c 0
1
2
3
4
5
6
7
8
9
10
J a n
F e b
M a r
A p r
M a y
J u n
J u l
A u g
S e p
O c t
N o v
D e c
0 5 10 15
J a n
M a r
M a y
J u l
S e p
N o v
0 5 10 15
J a n
M
a rM
a yJ u lS e p
N o v
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
J a n
M a r
M a yJ u l
S e p
N o v
0
5
10
15
20
25
J a n
F e b
M a r
A p r
M a y
J u nJ u l
A u g
S e p
O c t
N o v
D e c
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
3
-
A
p
r
1
7
-
A
p
r
1
-
M
a
y
1
5
-
M
a
y
2
9
-
M
a
y
1
2
-
J
u
n
2
6
-
J
u
n
1
0
-
J
u
l
2
4
-
J
u
l
2
1
-
A
u
g
4
-
S
e
p
1
8
-
S
e
p
UCL

LCL
Step 3: Document Customer and
Process Requirements
Step 2:Document Process
Step 4:Identify Output and
Process Measures
Step 5: Build Process
Management System
Step 6 Establish Data Collection
Plan
Step 7: Process Performance
Monitoring
Step 8: Develop Dashboards with
Spec Limits and Targets
Step 9: Identify Improvement
Opportunities
Process Management System






Trend
Chart
Problem
Pareto
Root
Cause
Corrective
Actions









Assess your previous mission/goals
Evaluate if your process boundaries have changed
Adjust and make corrections
Assess current CTQs and if they reflect process
Assess if any new CTQs or measures are needed
Adjust and make corrections

A.
Assess if current dashboards are representative
Collect Data and populate dashboards
Assess performance against targets
Adjust and make corrections
B.
D.
E.
Develop actions to address variation
C. Develop should be process map
Create a simple data collection plan
BPMS
35
Step-1 : Create Process Mission
Define process specific mission.

- Mission statement of the plant

List out preliminary process goals

- Measurable type
- Attribute type
36
Step-2 : Define & Document the Process
Use SIPOC to define the process.


Use flow charts to create & validate process maps.
Yet to be incorporated
Ready for all plants
Flowcharts are to be drawn on four different perspectives on a process
What one think the process is.
What the process really is.
What the process could be.
What the process should be.
37 30
Use SIPOC to define the process.
Starting at the Top
Key business activities can be defined at different levels of the organization:
Level 1 = highest - level view of work in the organization
Level 2 = work that flows across several departments or within a n entire
department or work area
Level 3 = a detailed view of of a particular process
Filling Sealing Packing
New Product
development
Demand
Generation
Demand
Fulfillment
Customer
Service
Ordering
Materials
Producing Picking Shipping
Mixing
Level 1
Level 2
Level 3
38 35
Which Flowcharting Technique
Should I use?
Basic
Flowchart
Activity
Flowchart
Deployment
Flowchart
To identify the major
steps of the process
and where it begins
and ends
To illustrate where in
the process you will
collect data
To display the
complexity and
decision points of a
process
To identify rework
loops and bottlenecks
To help highlight
handoff areas in
processes between
people or functions
To clarify roles and
indicate dependencies
39 31
Types of Flowcharts Useful
for Understanding Process Flow
Activity
flowcharts
Sales Technical Shipping Coordinator
Deployment
flowcharts
40
Activity Flowcharts
Activity flowcharts are
specific about what happens
in a process. They often
capture decision points,
rework loops, complexity,
etc.
Hotel Check - out Process
1
Approach front desk
3
Wait
4
Step up to desk
6
Wait
7
Give room number
8
Check bill
10
Correct charges
11
Pay bill
NO
NO
NO
YES
YES
YES
Start/End
Action/Task
Sequence
Process Name
Date of creation
or update &
name of creator
Clear starting
and ending
points
Clear
direction of
flow (top to
bottom or
left to right)
Consistent
level of
detail
Key of symbols
Numbered
steps
2
Is there
a line?
5
Clerk
available?
9
Charges
correct?
Decision
41
Deployment Flowcharts
Deployment flowcharts show
the detailed steps in a
process and which people
or groups are involved in
each step. They are
particularly useful in
processes that involve the
flow of information
between people or
functions, as they help
highlight handoff areas.
Invoicing Process
Shipping Customer
Elapsed
Time
5 days
10 days
7
Reviews weekly
report of overdue
accounts
Sales Billing
6
Receives and
records payment
5
Files invoice
3
Sends invoice to
customer
4
Notifies billing
of invoice
2
Notifies sales of
completed delivery
1
Delivers goods
8
Receives
delivery
9
Records receipt and
claims against this
delivery
10
Receives invoice
11
Checks invoice
against receipt
12
Pays bill
People or groups
listed across the top
Time flows
down the
page
Horizontal lines
clearly identify
handoffs
Steps listed in
column of person or
group doing step or
in charge
42 43
Value - Added and
Nonvalue - Added Steps
Value - Added Step:
Customers are willing to pay for it.
It physically changes the product.
Its done right the first time.
Nonvalue - Added Step:
Is not essential to produce output.
Does not add value to the output.
Includes:
Defects, errors, omissions.
Preparation/setup, control/inspection.
Over - production, processing,
inventory.
Transporting, motion, waiting, delays.
43 47
How to Create
an Opportunity Flowchart
Divide page into
two sections
Value - added
section smaller
than cost - added -
only section
Time flows down the
page
Only join two Value -
Added steps with an
arrow if there are no
Nonvalue - Added steps
in between
Yes
No No
No
Yes
Yes
Loop
Loop
Loop
Value - Added Steps Nonvalue - Added Steps
44
Step-3 : Document Customer & Process Requirements
Types of customers.


Translating VOC into specific requirements.
this is the place for defining the QFD
45
7
VOC Process
Outcomes:
A list of customers and customer segments
Identification of relevant reactive and proactive sources
of data
Verbal or numerical data that identify customer needs
Defined Critical - to - Quality requirements (CTQ)
Specifications for each CTQ
1.
Identify
customers
and determine
what you need
to know
2.
Collect and
analyze
reactive
system data
then fill gaps
with proactive
approaches
3.
Analyze data
to generate
a key list
of customer
needs in
their language
4.
Translate
the customer
language
into CTQs
5.
Set
specifications
for CTQs
46
What is Critical to Quality (CTQ)?
What a customer tells us they want from our product / service or process output
CTQs are rendered from Voice of Customer (VOC)
CTQs must be specific
CTQs must be measurable
CTQs must be actionable

_ CTQs always have three elements:
CTQ Category (also known as an Output Characteristic or CTQ name, e.g. Claims
Processing Timeliness)
Customer Specification (customers requirement of our product/ service or
process, e.g. 30)
Unit of Measure (how output is quantified by the customer, e.g. Days)

CTQ Example: Claims Processing Timeliness: 30 Days
Category Specification Unit of Measure
What is Critical to Quality
47
23
Example: CTQ Tree
Need Drivers CTQs
General Specific
Hard to measure Easy to measure
Ease of Operation
and Maintenance
Operation
Low qualification of operator
Easy to setup
(training / documentation)
Digital Control
Maintenance
MTBF
Maintenance
Documentation
Minimum special tools /
equipment required
Modification
Cost
Mistake Proofing and
One of 7 Management Tools Tree diagram
Standardization
Down time
48
Establishing a Performance Standard
A performance standard translates customer needs into
quantified requirements for our product or process
Better
Throughput
% Trained
Customer
Need
CTQ
Product/
Process
Characteristic
Measure
Specification/
Tolerance
Limit(s)
Target

95 %
90%
No. Trained against no.
identified for training in a
chosen subject
Defect Definition
Below 90%
49
Voice of Customer
After Clarifying, the
Key Issue(s) Is...
CTQ
Customer
Requirements
Step 3 Document Customer/Process Requirements VOC Guidelines
Your
Outputs
Key Issues
Customer
Requirements
CTQs
Voice of
Customer
Outputs of your
process are designed
to satisfy customer
needs profitably
Customer needs are
stated in the language
of the customer
Clarification of the
customers language
identifies the key
issues
Defined as customer
performance
requirements of a
product or service
Key issues are
translated into
customer
requirements
Sample CTQs

Reliability
Durability
Accuracy
Timeliness
Failure Recovery
Efficiency
Cost Savings
Easy to Use
Quick Response



Internal
Customers

Leadership
Process Owners
Stakeholders

External
Customers

Clients
Consumers
Regulators
Brokers
VOC Translation Process
BPMS
50
Voice of Customer
After Clarifying, the
Key Issue(s) Is...
CTQ
Customer
Requirements
Step 3 Document Customer/Process Requirements VOC Guidelines
51

Measurement Criteria
The measure must be important
The measure must be easy to understand
The measure is sensitive to the right things and insensitive to other things
The measure promotes appropriate analysis/action
The measure must be easy to get

Process
Step 4 Identify Output/Process Measures: Measurement Matrix Guidelines

CTQ Tree Template
CTQ
Key Issue
Specific CTQ
Customer
Requirement
Target
Minimum
Lower Specification
Limit (LSL)
Maximum
Upper Specification
Limit (USL)
Output
Measurements
Process
Measurements
Input
Measurements
BPMS
52
CTQ Tree Template
CTQ
Key Issue
Specific CTQ
Customer
Requirement
Target
Minimum
Lower Specification
Limit (LSL)
Maximum
Upper Specification
Limit (USL)
Output
Measurements
Process
Measurements
Input
Measurements
CTQ Template
53
BPMS
Objectives: Consolidate work performed in steps 1-5 onto
one concise page which captures the essence of your
process. Establish process specs/targets, control limits,
and response plan for out-of-control/under-performing
metrics.
Why Is This Important?: A process management system
allows a process owner to quickly respond to performance
trends. It is an enabler for process optimization.
Tools : Control Plan
Step 5 Build Process Mgmt. System
54
Step-5 : Build Process Management System

Measures & Targets.

Monitoring System.

Contingency Plan.
55
Remarks
Desc.
Target
LSL
USL
Checking
Item
Frequency Resp.
Contingency
plan
SOP/SOC/
Document
no.
Y1
Y2
Y2.1
X1
X2
X2.1
Process Management System
Process Flow Chart
Measure
Checking
Process Description: Process Customer : Customer Requirements : Outcome Quality Indicators :
56
BPMS
Measures
Reporting
Frequency
of Measures
(Daily,
Weekly,
Monthly)
Upper
Spec
Limit
Lower
Spec
Limit
Operation
Definition of
Metric
Green
Calculation/
Definition
Yellow
Calculation/
Definition
Red
Calculation/
Definition Data Type
Data
Owner
Display
Method
Sampling Plan
(what, where,
when, how
many)
Develop
Operational
Definitions &
Procedures
Operational Definitions
Collecting Data
Sampling
Plan for Data
Consistency
& Stability
Validating Measurement Systems
Begin Data
Collection
Training Data Collectors
Making Data Collection Activities Error Proof
Continue
Improving
Measurement
Consistency
Creating Monitoring
Procedures
Data Collection Roadmap
Step 6 Establish Data Collection Plan Guidelines
57
Measures
Reporting
Frequency
of Measures
(Daily,
Weekly,
Monthly)
Upper
Spec
Limit
Lower
Spec
Limit
Operation
Definition of
Metric
Green
Calculation/
Definition
Yellow
Calculation/
Definition
Red
Calculation/
Definition Data Type
Data
Owner
Display
Method
Sampling Plan
(what, where,
when, how
many)
Data Collection Plan
58
BPMS
Step 6 Establish Data Collection Plan Guidelines
Decision to
Collect New Data
Is there existing data to help with problem
solving mission?
Is current data enough?
Does the current data meet the process needs?
Is the team just using data that is available?
Decision to
Sample
It is often impractical or too costly to collect all
of the data
Sound conclusions can often be drawn from a
relatively small amount of data
One BB to finalise sampling strategy
Validating
Measurement Systems
Data is only as good as the measurement system
used to gather it. Measurement systems must be
validated to ensure data is free from errors
There are a variety of techniques to validate data
consult a Quality representative or refer to your
six sigma training
Review the measurement system periodically to
ensure consistency and stability over time
Data Collection
Considerations
Can the new data be generated through systems
modifications?
Can data collection be integrated into existing
work processes?
Is all data being collected necessary to calculate
process measures?
Can some data collection efforts be curtailed
because they dont add value?
59
BPMS
Step 7 Process Performance Monitoring Guidelines
Type of Data
Variation Over A
Period of Time
Variation Over
Time
Pareto Diagram Run Charts
Discrete Bar Charts Control Charts
Pie Charts
Histograms Run Charts
Continuous Box Plots Control Charts
Multi-Vari Charts


Purpose of Control Charts

Determine whether or not process variation is due to
special cause or common cause variation

Determine whether the process is in control or out of
control


Upper
Control
Limit

Average

Lower
Control
Limit
Time
60
Process Performance Monitoring
All Repetitive activities of a process have a certain amount
of fluctuation .

Input, Process & Output measures will fluctuate.

Variation is the Voice of the Process Learn to Listen to it
and Understand it.
61
BPMS
Defective Rate, DPMO, and Sigma for Purchase Order Request Process
0
100000
200000
300000
400000
500000
600000
700000
Week Ending
D
e
f
e
c
t
i
v
e

R
a
t
e
/
D
P
M
O
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
S
i
g
m
a
Defectives per Million DPMO Sigma
Defectives per Million 63809 34574 38271 30000 11842 16666 14814 17613 16000 25000 31147 22413 71429 30833 0 0 0 0 0
DPMO 70899 46099 43896 34921 24123 17490 16461 10101 8889 34722 38251 23946 7937 33333 0 0 0 0 0
Sigma 2.97 3.18 3.21 3.31 3.48 3.61 3.63 3.82 3.87 3.32 3.27 3.48 3.91 3.33
9/28/0
1
10/5/0
1
10/19/
01
10/26/
01
11/9/0
1
11/16/
01
11/30/
01
12/7/0
1
12/14/
01
12/28/
01
1/4/02
1/18/0
2
1/25/0
2
2/1/02
2/15/0
2
2/22/0
2
3/8/02
3/15/0
2
3/29/0
2
0 10 20
3.0
3.5
4.0
Measurement
Week of
S
i
g
m
a
Individuals Control Chart for Weekly Requistion Sigma
X=3.448
3.0SL=3.939
-3.0SL=2.958
Step 7 Process Performance Monitoring Charts
62
BPMS
Key Considerations
How do you want the information
displayed?
To what level do you want to drill
down in the information?
How might you want to segment
the information for making critical
decisions?
Who should access the
information?
What supporting information do
you want to see?
Lower level dashboards should
roll-up to higher level dashboards.

Identify Universe
of Potential Measures
Narrow List of
Measures
Data Collection
Determine Measures
w/Best Relationship
to CTQs
Finalize Dashboard
Dashboard Creation Roadmap
Step 8 Develop Dashboards Guidelines
63
External
Environmental
Information
Dashboard
Indicators
Internal
Environmental
Information
Process
Review
Satisfied with
Indicators?
Continue
Control
Actions
Yes
Plan/Implement
Improvement
Actions to
Correct
No Action Troubleshoot DMADV
QC/SGA/
Quick Hit/
DMAIC
Identify Problem
Diagnose Root Cause
Remedy Cause
Process Improvement Process Redesign
(process not capable
of performing to
standards)
Step 9 Operate Process Management System &
Identify
Improvement Opportunities
No
64
Measures
Target
USL
LSL
Data
collection
method
Immediate
Control/Fix
Process
Improvement
projects
Process Map Monitoring Response Plan
Process Management Chart
Process Name : Process Owner : Date :
65
Business Big Ys

Project Y
Process Ys

Management
PROCESS
Y
Y
Y
Y
Key output metrics that are
aligned with strategic
goals/objectives of the
business. Big Ys provide a
direct measure of business
performance.
Key output metrics that
summarize process
performance
Key project metric defined
from the customers
perspective
Any parameters that
influence the Y
X
1
X
2

X
3

Project Y Alignment
66
Project Identification
Customer wants and
needs should drive
our actions!
Whos the customer?
What does he/she
think is critical to
quality?
Who speaks for the
customer?
Whats the business
strategy?
Who in the business
holds a stake in this?
Who can help define
the issues?
What are the
processes involved?
67
A GreAt Project Should
Be clearly bound with defined goals
-If it looks too big, it is
Be aligned with Strategic Business Objectives and
initiatives
-It enables full support of business
Should have high Impact the Bottom Line
Be felt by the customer
-There should be a significant impact
Work with other projects for combined effect
-Global business initiatives
Show improvement that is locally actionable
Relate to your day job
Focus on key CTQs
68
Six issues in selecting a project:
Process
Feasibility (Is it doable?)
Measurable impact
Potential for improvement
Resource support within the organization
Project interactions
Low Medium High
Low
Impact
Medium
Impact
High
Impact
D
e
l
i
v
e
r
e
d

C
T
Q

I
m
p
o
r
t
a
n
c
e

Performance
Top priorities based on impact and performance:
strategic issues
Selecting the Right Projects
69
Project Prioritization Matrix
The desirability of a project increases as you move from
the lower right to the upper left, and as the circle gets
larger
Low Med Hi
EFFORT
Low
Med
Hi
I
M
P
A
C
T

Low
Med
Hi
Probability
of Success
70
Success Factors
Project scope is manageable
Project has identifiable defect
Project has identifiable impact
Adequate buy-in from key stakeholders
To Be Successful
Set up project charter and have it reviewed
Measure where defects occur in the process
Assess and quantify potential impact up front
Perform stakeholder analysis
Common Pitfalls
Inadequately resourcing the project
Duplicating another project
Losing project momentum
Picking the easy Y, not the critical Y
Avoiding Pitfalls
Identify and get committed resources up front
Research the project database and translate from other projects where
possible
Set up milestones and a communications plan

Project Selection
71
A Good Project
A good project:
Problem and Goal Statements are clearly stated
Defect and opportunity definition is clearly understood
Does not presuppose a solution
Clearly relates to customers and their requirements
Aligns to the business strategy
Uses the tools effectively
Is data driven
72
A bad project:
Is not focusedscope is too broad
Is not clear on what you are trying to fix
May be an already-known solution mandated without
proper investigation
Is difficult to see linkage to customer needs
Is not clearly aligned with business objectives
Has little or no use of tools
Is anecdotalnot data driven

A Bad Project
73
Project Chartering
A Charter:
Clarifies what is expected of the team
Keeps the team focused
Keeps the team aligned with organizational priorities
Transfers the project from the Champion to the
improvement team
74
Five Major Elements Of A Charter
1. Business Case
Explanation of why to do the project
2. Problem and Goal Statements
Description of the problem/opportunity and objective in
clear, concise, measurable terms
3. Project Scope
Process dimensions, available resources
4. Milestones
Key steps and dates to achieve goal
5. Roles
People, expectations, responsibilities
75
The Goal Statement
The Goal Statement then defines the
teams improvement objective

Definition of the improvement the
team is seeking to accomplish?
Starts with a verb (reduce,
eliminate, control, increase)
Tends to start broadly - eventually
should include measurable target and
completion date
Must not assign blame, presume
cause, or prescribe solution!
Specific
Measurable
Attainable
Relevant
Time Bound
76
8 Steps To Bind A Project
1. Identify the customer
Who receives the process output?
(May be an internal or external customer)
2. Define customer expectations and needs
Ask the customer
Think like the customer
Rank or prioritize the expectations
3. Clearly specify your deliverables tied to those expectations
What are the process outputs? (tangible and intangible
deliverables)
Rank or prioritize the deliverables
Rank your confidence in meeting each deliverable
77
4. Identify CTQs for those deliverables
What are the specific, measurable attributes that are most
critical in the deliverables?
Select those attributes that have the greatest impact on
customer satisfaction

5. Map your process
Map the process as it works today (as is)
Map the informal processes, even if there is no formal,
uniform process in use

6. Determine where in the process the CTQs can be
most seriously affected
Use a detailed flowchart
Estimate which steps contain the most variability
8 Steps To Bind A Project
78
7. Evaluate which CTQs have the greatest opportunity
for improvement
Consider available resources
Compare variation in the processes with the various
CTQs
Emphasize process steps which are under the control of
the team conducting the project
8. Define the project to improve the CTQs you have
selected
Define the defect to be attacked

8 Steps To Bind A Project
79
Project Selection Workshop
2 Ways :

Top- down method More effective & High impact projects.
(Through CTQ selection workshop)


Bottom-up method Low impact & High numbers of projects

80
>List down the Strategic Business Objectives
>List down the Key Focus Areas to achieve the SBOs
>Prioritize the KFAs
>List down the core processes
>List the impact of the core processes on the KFAs
>Rank and prioritize the core processes
>List down the performance indicators for the
prioritized list of core processes
>Rank and Prioritize the CTQs
>Generate projects list from CTQs
CTQ Selection Workshop
81
Step 1 - List down the Strategic Business
Objectives & Key focus areas of your
plant/deptt.
CTQ Selection Workshop
Sl.No SBOs KFAs Wtg
1
2
3
82
CTQ Selection Workshop
Step 2 Core Processes of Each Function
Impact of Core Processes on each KFA
Sl # Key Focus Areas
Wtg
of KFAs
Core Process 1 Core Process 2 Core Process 3 Core Process 4 Core Process 5 Core Process 6 Core Process 7 Core Process 8 Core Process 9 Core Process 10
Process Absolute Importance (Column Sum
: Sum of scores the process wrt SO)
Process Relative Importance (Realative
Importance = Absolute Importance / Total)
List your process and What level of impact it will have on the KFA , 1=Low, 3=Medium, 9=High
83
CTQ Selection Workshop
Step3 Priority of CTQs
Sl
#
Process CTQs / Metrics As Is Must Be Gap Ease to Implement
Impact on
Margins
Translation
Opportunity
Root Causes
Already Known
with
Confidence?
(Yes / No)
Is Problem
Because of
Variability?
(Yes / No)
Data
Availability
on Xs and
Y
Priority
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1=Low 1=High 1=Low
3=Low to Medium 3 = Medium to High 3=Low to Medium Priority =
5=Medium 5=Medium 5=Medium Gap*Ease*Impact*Translation
7=Medium to High 7=Low to Medium 7=Medium to High
9=High 9=Low 9=High
84
CTQ Selection Workshop
Step-4 :

List of projects
85
DEPTT./PROCESS/FUNCTION:
ISSUES
SAVING
POTENTIAL PER
ANNUM (IN
LAKH OF
RUPEES)
AVAILA
BILITY
OF
DATA
(Y/N)
ISSUES WHICH
MAY BE
IMPACTED
OTHER
FUNCTIONS
CONCERNED
PART OF
THE
EXISTING
PROJEC
T (Y/N)
REMARKS
ISSUES OF COST REDUCTION & CUSTOMER SATISFACTION OBTAINED FROM EACH DEPTT THROUGH
BRAINSTORMING
ISSUES SELECTED FROM OPERATIONS
FORMAT No.:
AREA OWNER:
Front line Project Selection
86
Thinking line for Project Selection
Thinking line for Front-line project selection :
Cost saving projects
Cost avoidance projects
Reliability/Process improvement projects
Quality/ Customer/Competitor oriented projects.
Ease of operation projects.
Knowledge management projects.
Material handling projects.
87
88
PAY BACK WORKING:
Existing Contribution in Rs. 4744113.0
Contribution after Modernization in Rs. 6859511.0
Increase in Contribution in Rs. 2115398.0
Pay Back Period in Months 31.0
ADVANTAGES:
`High Speed machines *High end product * High end market
`Higher productivity (Present 35.91 gss is chronic problem in 80s)
`Cost reduction due to productivity utilization increase and way the minimization.
`Turnover increase with investment State of the art Technology
`Branded Product
`Lead Supplier
`Fast Pay Back and first Player
89
Note:
The Financial Overheads need to be taken after contribution,
with present worth of future returns.
EARLIER INTERNAL SCHEME:
Only replacement Horizontal not vertically
No increase turnover even after modernization
Substance medium product in medium market
Space kept idle
90
PRODUCTION CYCLE TIME
Time gap between the starting time to produce a completed item (or
Batch, ready for dispatch) till the next item (or Batch ) is started. The total time is
production cycle time.
CONTINUOUS IMPROVEMENT:
Continuous Improvement View of Losses of Deviations from Normal
91
L(y) =K(y-m)
2
= Taguchi Loss Function

Where,
y = the value of the quality characteristic for a particular item of
product or service,

m = the nominal value for the quality characteristic, and

k = a constant, A/d
2


A = the loss (cost) of exceeding specification limits (e.g., the
cost to scrap a unit of output), and

d = the allowable tolerance from the nominal value that is used
to determine specification limits.
LOSS FUNCTION :
92
The Continuous definition of quality, return to the sample of the production of
stainless steel ball bearings, Every millimeter higher or lower than 25mm causes
a loss that can be expressed by the following Taguchi Loss function:
L(y) = K(y-m)
2
= (A/d
2
)(y-m)
2
= (Rs.1.00/ 5
2)
(y-25mm)
2

= (0.04)(y- 25mm)
2
if 20 y 30,
L(y) = Rs.1.00, if y < 20 or y > 30

Table shows the values of L(y) for the Quality characteristic (diameter of ball
bearings)
ILLUSTRATION:
93
94
The basic principle of inventory optimization and
materials management is to minimize the competing costs of
having either too little or too much in inventories of raw
material, work in process, or finished goods.

Inventories provide indispensable buffers to improve
the leveling of production activity, but they constitute a
major investment of the funds of most firms.

The traditional method of timing production runs and
inventory replenishment has been by reorder point.
INVENTORY OPTIMIZATION
AND MATERIAL REQUIREMENTS PLANNING

95
Reorder point control should be replaced with MRP for
production items and by DRP (distribution requirement
planning) for finished goods inventories.
Under reorder point, total costs of inventory policy
(TC) are generally taken to include the following
as the most important cost elements:

TC = setup costs (or procurement costs) + holding costs +
stock out costs A first approximation to the cost categories of
this equation is to specify the total cost to be

(for never stock situation)

For D= Annual Demand, p=price per unit

2 d/r))/ - (ipQ(1 cD/Q TC
96
The procurement or setup cost is c dollars per order,
and the order or production run amount is Q
units per batch. If the item is produced, it is at a daily rate of
r and depleted at a daily rate of d.

The value for the effective rate of interest, i, is often
taken to be about 30 percent, to include the opportunity cost of
capital. insurance, obsolescence, and other costs of holding.

97
The above TC equation is minimized when
This equation is for the case of setting up a machine to run the
item to a certain inventory level, then running that machine on
another item until stocks are nearly depleted.


The economical production quantity, or EPQ, is the
approximate optimal value of units per batch to manufacture,
assuming simplistic uniform demand rates for finished goods
with simplified work centers. Although reorder point
continues to be commonly used, superior total planning
control is possible with computer-based MRP.
) / 1 ( / 2 r d ip Dc EPQ
Economical Production Quantity (EPQ):
98
INVENTORY THEORY AND MODELING:
Proper control of inventory requires a delicate balance and careful, detailed
planning. To the controller who sees funds tied up in material in the warehouse, work-
in- process inventory, and finished goods not shipped, the natural reaction is that
inventories are too high. To the production superintendent faced with the prospect of
interrupted deliveries or silent production lines due to inadequate raw, in-process, or
finished materials, the response must be that inventories are too low. Therefore, a
balance is needed between holding large quantities to satisfy the latter and frequent
stock replenishment to satisfy the former. This might be represented, as in below figure

99
If the replenishment quantity q is represented on one axis and the total
inventory cost in dollars is represented on the other.
Many reasons exist for keeping inventory. They include: to improve
customer service; to hedge against demand surges and variation of production
level; to take advantage of favorable prices; to ensure against error and loss; and
to avoid production stoppage.
Overproduction for any of these reasons can, on the other hand, increase
costs through high investment and low capital turnover, material obsolescence,
spoilage an deterioration, storage and handling excesses, and inefficient use of
space due to overcrowding.
100
Two basic concepts of control models need to be cognized:
+Transaction reporting
+periodic review.

TRANSACTION REPORTING:
Transaction reporting requires continuous, accurate updating of stock
records to determine when a replenishment order should be initiated. Frequent
stock activity, high volume requirements, and identifiable individual units may
make this type of system more desirable. This system may entail perpetual (or
continuous) record processing: e.g., reporting the use of each item and continuous
monitoring of stock levels. When a predetermined reorder point is reached, an
economic order quantity acquisition is initiated. This reorder point is set to ensure
that sufficient stock is available to carry the production process until the
replenishment supply is received.
101
A second concept is that records will be reviewed periodically (weekly,
monthly, quarterly, etc.) and if the level of inventory for that ; item has fallen below
a certain target level, anew ) order will be placed. If it has not, the record will be ,
returned to the file for review again at the end of the next period. Target levels,
period lengths, and e replenishment quantities are dependent on frequency of use,
replenishment lead time, and criticality of item. This system is usually more difficult
to establish but results in lower clerical cost to maintain stock control. Both
transaction reporting and periodic review systems can be maintained manually or
by computer, if the inventory system is of sufficient size to warrant computer
control.

EXAMPLE:
A manufacturer uses wooden pallets for unit load shipping of the product.
These pallets are used regularly at rate of 100 per month and purchased from a
vendor Rs. 3.50 per pallet. They are stored in an unheated but covered shed until
needed, 19 and it is estimated that it costs 20 percent of the unit value to pay for the
investment and storage costs.
PERIODIC REVIEW:
102
A fixed cost of 150 in clerical time and processing is incurred every time a
replenishment order is processed. If pallets are available when needed, re -handling
of the unit load of final product is necessary at a cost of Rs10 per unit. Delivery
normally takes from 6 to 10 days from the time of order, and 6, 7, 8, 9, or 10 days are
equally likely. To determine the EOQ, the following is considered:
If C = replenishment cost
S = storage cost
I = number of inventory turnovers per year
T = total cost per year for storage and replenishment
R = rate of demand
Q = order quantity (EOQ)
103
then Q can be calculated to be the order quantity which results in the
lowest cost T
Q = (2CR/S)

= (2(50) (100)/ (0.2)(3.50))= 120 Pallets/ Order.
I = ( R ) (Number of Months)/ Q

= (100)(12)/ 120 = 10 Turnovers/ Year

In this example, a transaction system is to be used, and a reorder point
needs to be determined which will provide protection during the reorder period of 6
to 10 days. Since it is equally likely that delivery can be at any time between 6 and
10 days, inclusive, the reorder point will be selected at the point that gives a cost
balance between overstocking during the lead time and under stocking.
Each time period of days from 6 to 10 has 1 chance in 5 of occurring in
the replenishment cycle. By weighting the chances of various delivery possibilities
by the cost of overstocking versus under- stocking, a weighted average of delivery
days can be computed which establishes a basis of the reorder points.
104
In this example it may be computed as follows:
Number of items demanded per day = 100/20* = 5 .
*20 days assumes a 5-day workweek
Average cost of overstocking = (5)( 3.50)(1/5)(x- 5)

where x = delivery period between 6 to 10 days
Average cost of under stocking =(10 X 1/5)[10-(x -5)]

Solving for x as the point where the weighted-average overstocking
cost equals the weighted-average under stocking cost:
(5)(3.50)(1/5)(x- 5) = (10)(1/5)(10 -x)
3.5x- 17.5 = 20 -2x
5.5x = 37.5
x= 6.8
105
The weighted-average delivery period for the purpose of planning
the reorder point is 6.8 days.
Reorder point = (100/20)(6.8) = 34.0
In summary, place an order for pallets when the pal- let inventory
drops to 34. Thus, you will provide an economical stock system
for pallets as long as the costs and d factors or the delivery time
factors do not change.
106
107
PAYBACK TIME
Payback Time is a rough and ready model that is looked upon disdain by
many academic theorists . Payback sometimes called payout or payoff. Yet pay
back is most widely used decision model, and it certainly is an improvement over
the criterion of urgency or postponability.
Further more, it is a handy device
a. Where precision in estimates of profitability is not crucial and
preliminary screening of a rash of proposals is necessary
b. Where a weak cash and credit position has a heavy bearing on the
selection of investment possibilities and
c. Where the contemplated project is extremely risky.
108
The Payback Calculations follows:
P=I/O
Where P= Payback Time, I= Initial increment amount invested and O= The
uniform annual incremental each inflow from operations.
Essentially, payback is a measure of the time, it will take to recoup in the
form of cash from operations only the original amount invested. Given the useful
life of an assets and uniform cash flows, the less payout period , the greater the
profitability or given payback period, the greater useful life of the asset, the greater
the profitability. Note that, payback does not measure profitability, it does measure
how quickly investment amount may be recouped.
An investments main objective is profitability, not recapturing the
original outlay. If a company wants to recover its investment outlay rapidly it need
not bother spending in the first place. Then payback time is ZERO; NO WAITING
TIME is needed.
109
The Major weakness of the payback model is its neglect the
profitability.
-Continuous Technological up gradation is required to be in
the competition.
-The profit earned is ploughed back, with additional
investment in order to enhance the growth of the organization
-Such options involves various alternatives and working for
return on investment.
-Firstly the technical feasibility is examined reliably
predication is a valuable activity to design reliable systems.
-Failure have to be identified and proacted
-System need to be designed that is robust
110
- Design Review:
1. Determine if the product will actually work as desired
and meet the customers requirements
2. Determine if the new design is producible and
inspectable
3. Determine if the new design is maintainable and
repairable
- Financial Feasibility:
Net income
Margin on Sales =
Sales
111
RETURN ON INVESTMENT (ROI):
The return on investment is measured by adding back interest to net
income after taxes and dividing by total assets. It is a measure of the after
tax profitability with which the firms total resources have been employed.

Return on investment = Net income + interest Total Sales

=192,000 + 40,000 2,000,000
ROI=I= S-P P
Where P= The amount borrowed (or the amount invested )
S= The amount paid back (or the amount collected) at
the end of the year
112
RATE OF RETURN:

For example, assume the following situation.

Invest Rs.10,000 in a laborsaving machine.
Labor savings = Rs 2500 per year.
Useful life = 10 years.
Company desires 10 percent return on investment.
Machine will be depreciated for tax purposes over 10 years on a straight-line basis.
Company has 50 percent tax rate.
Machine will have no salvage value.

Annual Cash-Flow Computations:
Compute the annual cash flow as follows (in this example, the savings are the same
each year):
Cash in from labor savings .Rs. 2500
Cash out for taxes Rs. 750*
Annual Net cash inflow..Rs.1750

* Income subject to tax = Rs2500- Rs.1000 depreciations = Rs.1500 at 50% = Rs750
113
RATE-OF-RETURN CALCULATIONS:
The investment outlay is Rs.10,000. The annual cash savings is Rs.1750. A 10
percent return is desired. Look at Table B-4. Under the 10 percent column, read
down to 10 years. The factor is 6.44. Multiply 6.44 by the annual savings of
Rs.1750. The result is Rs.11,270. This means that the present value of the future
cash inflows of Rs.1750 per year is worth Rs.11,270 today if a 10 percent return
on investment is desired. Since the investment is only Rs.10,000 and the present
value of future inflows is Rs.11,270, the investment would be made.
If the actual return is desired, divide the investment by the annual savings,
Rs.10,000/Rs1750 = 5.71, Again, look at Table B.4 and read across from year
10. The factor 5.71 is between 12 % and 14 % or about 13% return on
investment.
114
COMPLEXITIES:
Variable Annual Savings: The cash savings generated from a capital project are
seldom the same for each year of the life of the project. The savings may be
different because of the use of accelerated depreciation, varying production
levels, changes in tax rates, and other related items. The discounted cash-flow
concept can be used with varying annual savings in two ways, as illustrated in
the following example company has the opportunity to invest Rs.1000 in e of
four alternative projects. Each project has an estimated life of 6 years and a total
return of Rs.1800. The flow of the savings is as shown in this array.


Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
115
0 2 4 6 8 10 12 14 16 18 20
30%





20%






10%





0
30%





20%






10%





0
Rate of return
Reciprocal pf Payback Period
RECIPROCAL OF PAYBACK PERIOD COMPARED WITH RATE OF
RETURN
116
INTERNAL RATE OF RETURN:

One approach is to calculate the rate of return on each project. The
internal rate of return is the rate which is being earned on the unamortized balance
of the investment, such as the rate on a home mortgage. Using Table B-4, the
calculation is made using a trial-and-error approach. What rate will bring the
future cash flow back to Rs.1000 today?
The rates are,
Project A: 25 + percent
Project : 30 + percent
Project C: 16 percent
Project D: 25 percent
117
NET PRESENT VALUE:

The net present value of an investment is the difference between future
cash inflows discounted at a specified rate and the amount of the original
investment. If a desired rate of return is known, the present value of the future
flow can be determined. Assume the company wants a 20 percent return on
investment. The present-value factors for 20 percent for each year are given in
Table B-2. Applying these factors to the flows for the four projects, a present
value for each project is as follows:
Project investment Present Value Net Present
@ 20%
A Rs.1000 Rs. 1092 Rs. 92
B 1000 1188 188
C 1000 996 - 4
D 1000 1142 142
Refer the table B-2
118
Using the net-present-value (NPV) approach, we see that project B has the
highest net present value. Projects A, B, and D all have positive net present
values, which mean that these projects all return more than 20 percent. Project
B has the highest NPV, which makes it the most attractive alternative. Project
C, with a negative NPV, returns slightly less than 20 percent.
How would you rank projects if the original outlay is different? The one with
the highest investment is likely to have the highest absolute Rupee NPV but
may have a smaller return. Projects of this nature can be ranked by the use of a
profitability index.
119
PROFITABILITY INDEX:









Project A has the lowest Rupee NPV. It also has the lowest investment outlay.
The index shows, how- ever, that it has the highest return; i.e., the Rupee
received discounted at 20 percent are higher relative to the investment than the
Rupee received in either project B or project C.
Rs.

Rs.

Rs.
Rs.

Rs.

Rs.
120
TABLE : B-1 PRESENT VALUE OF RS.1 RECEIVED AT END OF THE YEAR
INDICATED
Present Value =1/(1+i)
n
121
TABLE : B-2 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF THE YEAR INDICATED
Present Value =1/(1+i)
n-1/2
122
TABLE : B-3 PRESENT VALUE OF RS.1 RECEIVED AT END OF EACH YEAR FOR N YEARS
123
TABLE : B-4 PRESENT VALUE OF RS.1 RECEIVED AT MIDDLE OF EACH YEAR FOR
N YEARS
124
Emulating
the bench mark of
Koba Yashi Mitsubishi
Success Model
125
The Keys
Small group activity
a. One suggestion per month per person.
b. Short standing meetings to stress
efficiency.

Cleaning and Organizing
KEY: 1
Measured Management Objectives ( Safety, Horizontal Hierarchy,
Clear Instruction from TOP)
KEY: 2
KEY: 3
126
127

Reducing Inventory. (Work - in - Progress)

a. All activity that dont add value to product are
wasteful.
KEY: 4
128
129
QUICK CHANGEOVER TECHNOLOGY
a. Any one should be able to perform a quick
changeover ever in new environments.
b. Accept the change to shorten all changeovers
to less than one cycle time.
KEY: 5
130
131
Value Analysis of Manufacturing Methods (Improvement in Methods)
a. Ask WHY five times for every motion of
activity.
b. Modular a management of predetermined
Time standards
(i) Material Handling Method
KEY: 6
132
133
Zero Monitor Production
a. Monitoring is a form of Waste
b. Watching the running machine?
KEY: 7
134
135
Integrating Functions
a. Reduce the inventory at the joining points.
b. Reduce the Joints and make seamless.
c. Planned Maintenance activity.
KEY: 8
136
137
Maintaining Machines and Equipment
a. Prepare Preventive maintenance group
b. Full employee involvement in study groups
KEY: 9
138
139
140
KEY: 10
WORK FLOOR TIME POLICES
+Encourage the workers to do the next days
preparation before they go home at night.
141
142
KEY: 11
QUALITY ASSURANCE SYSTEM
+Next process is customer.
+No bad product to the next process.
+Workers perform inspection on their own
product.
143
We must build quality
in the processes
themselves!
Ill inspect what I make
144
POKA YOKA
145
KEY: 12
DEVELOPING YOUR SUPPLIERS
+Treat external as internal division.
+Technical Support.
146
KEY: 13
ELIMINATING WASTE WITH A TREASURE MOUNTAIN MAP
+Only do those actions customer will pay.
147
148
KEY: 14
EMPOWER WORKER TO MAKE IMPROVEMENTS
+Expand processing capability in the improvement corner.
+Building through Low-cost Automation Devices.
149
150
KEY: 15
SKILL VERSATALITY AND CROSS TRAINING
151
152
KEY: 16
PRODUCTION SCHEDULING
153
154
KEY: 17
EFFICIENCY CONTROL
+Decide on standard times for each process.
+Compare the standard times to actual times.
155
156
KEY: 18
USING MICROPROCESSORS
+Mechatronics.
+Learnt about sensors and how they are used.
157
158
KEY: 19
CONSERVING ENERGY AND MATERIALS
+Quantify the importance of conservation by showing
energy and material costs as a percentage of total costs.
159
160
KEY: 20
LEADING TECHNOLOGY - SITE TECHNOLOGY
+There is no interest in the progress of the other players in
the industry.
+People in the factory are content with the current site
technology.
+The factory is about on par with the rest of the industry.
161
Taiichi Ohno's original enumeration of the seven wastes plus
underutilized people. These are:
Eight wastes
1. Overproduction: Making more, "earlier, or faster than the next
operation needs it.
2. Waiting for the next process, worker, material, information, or
equipment.
3. Transportation: unnecessary transport of materials.
4. Overprocessings of anything that does not add value.
5. I nventories more than the absolute minimum required to meet
customer demand.
6. Motion: unnecessary movement (like waiting) of people.
7. Production of defective parts or information.
8. Not fully utilizing employees brain power, skills, experience,
talents and creativity.
162
163
Value stream mapping from rfq to delivery
1. Determine the process family.
2. Draw the current state map
3. Create a future state map
4. Develop the action plan to get to the
improved future state.
164
Four steps to Value stream mapping
Step 1: product development
Identify customer requirements,
Define method of delivery, and
Define typical quantity requirements.
This value stream can serve more than one customer, but
be sure to use similar primary processes. Use a pencil
rather than a computer.
165
Step 2: process design
Cycle time (Operator and Machine cycle time)
Changeover times,
Average inventory queue,
Average production batch size,
Number of operations at each process,
Package or container size,
Available time (take out break and lunch times),
Scrap rate,
Machine up-time (availability), and
Number of product variations.
Perform an upstream walk-through for each process step, observing
and documenting as much of the following as possible.
166
Step 3: preparation
Record as much information as is pertinent in the process
description box.
Step 4: planning
Develop a future state map,
Dream about perfection (Imagineering),
Think outside the box,
Develop alternatives to the current state map that are
muda free, and
Focus on velocity.
167
168
This business was very focused on its core processing activity, but less
focused on the support functions. One of these support functions was the
off-line handling and managing of its molds, which were quite fragile and
breakable.

This was considered to be a less important activity than production and, as
long as the molds were ready for production as required, Plant
Management largely ignored this activity.

Also, the budget for this section was relatively small; in anyone year they
would spend about $200,000 on the replacement of molds that were broken
off line. As this was only about 1% of costs, the activity was never
previously targeted in typical cost reduction programs.
1 % error Adds Directly to The Bottom Line
169
As part of an operational review, this organization investigated its 1
%errors and this previously ignored cost.

A comparison with similar plants showed that it was possible to operate
with almost zero breakages and that the current expense could be
eliminated with better handling and management. The procedures from
the other plants were adopted to address the issue.

This resulted in breakages being almost eliminated. Focusing on this
previously ignored 1 % error and adopting simple procedural changes
added $200,000 to the bottom line.
Contd
170
171
PROCESS CAPABILITY RATIO
The concept of Process Capability Ratio (PCR), was defined as
PCR = USL LSL / 6 (two sided)
For one sided upper specifications only, the PCR is defined as
PCR
U
= USL - / 3 (upper)
And for one sided lower specifications only, the PCR id defined as
PCR
L
= - LSL / 3 (Lower)
The PCR aids in the evaluation of processes with respect to their specification
limits.
172
Recommended Minimum values of the Process Capability Ratio
Two sided
Specification
One Sided
Specification
Existing processes 1.33 1.25
New processes 1.50 1.45
Safety, strength, or critical
parameter, existing
process
1.50 1.45
Safety, strength, or critical
parameter, new process
1.67 1.60
173
174
Process follow out for a normally distributed characteristics (One-
sided specifications). For Two sided Double the value of Y- axis
175
INDICES OF PROCESS CAPABILITY
SHORT TERM CAPABILITY
176
LONG TERM CAPABILITY
177
Example: PCRs AS FRACTION NONCONFORMING
PCRs may be translated into an expected fraction nonconforming,
assuming a normal distribution for the characteristic of interest. For instance , a
PCR = 1.25 for a two sided specification indicates that
PCR = USL LSL / 6 = 1.25
So that USL LSL = 7.5 and
Z = 3.75 / = 3.75
More extensive tabulation from Normal Distribution Table, show that,
1 (3.75) = 0.000088
Since we are considering a two sided specification, the expected fraction non
conforming is 2 (0.000088) = 0.00018. Currently, quality controllers are
concerned with parts per million (ppm) defective. For PCR = 1.25, we expect
180 ppm non conforming.
178
THE SIGMA CONVERSION GUIDELINES

No Action

+ 1.5


- 1.5


No Action
Short - Term
To
Long - Term
FROM
Short - Term Long - Term
179
180
181
182
WHEN TO USE DPO AND WHEN DPU?
e
-dpo
denotes the probability that an opportunity will not have a
defect.
e
-dpu
denotes the probability that a unit will be defect free.
In most practical situations, we have more than one CTQ (critical-
to-quality) characteristics associated with a product and hence
more than one opportunity of defect. Hence it is more rational to
use e
-dpo
as a measure of yield.
However, if the possible number of opportunities is infinitely
large, then e
-dpu
should be used as a measure of yield.
183
PERFORMANCE MEASURES AT A GLANCE
d: Number of defects
dpu: Defects per unit
dpo: Defects per opportunities
Dpmo: Defects per million opportunities
Zst: Short term sigma rating
Zlt: Long term sigma rating = Zst + 1.5
Y tp: Through put yield
Y rt: Rolled through put yield
Cp: Process capability (Potential) index
Cpk: Process capability (performance) index
PPM: Parts per million defects
184
Yes
185
NO
186

187

188
YIELD: THE CLASSICAL PERSPECTIVE
Y final == S / U
where Y final == Final yield
U == Number of units tested
S == Number of units that pass
Is the classical calculation of yield con-elated to other- major business metrics?
-Yield has always been considered a very important metric for guiding the
business; however, no correlation is observed between yield and profit
margin. How can this be explained?
189

Suppose we say that there are 5 key tasks which must be executed (
without error) in order to successfully prepare a report, viz writing,
typing, Xeroxing, collating and binding .

Suppose that each of these tasks are operated at 3 level. The
probability of not getting a defect at any of these stages is 0.9973.

Then the probability of preparing an error free report is given by 0.9973 x
0.9973 x 0.9973 x 0.9973 x 0.9973 = 0.9866.

If there are 18 such reports prepared, then the total number of
opportunities for non-conformance would be 5xI8=90.

The probability of 100% conformance to all requirements would be
0.9866
18
= 0.7840.
Thus the rolled throughput yield is given by ytp = 78.40%.
IDEA OF ROLLED THROUGHPUT YIELD
190
191

192

193

194

195

196
197
1. In an organization the rate for winding, machine,
laminating and processing Departments are
80%,98%,68%, & 99%. What is the YRT, YNA, PPM.
2. In the process of producing 7500 units 50 defects were
observed. The total type id defects that could have
occurred were 10. Find DPU, TOP, DPO & YFT. The
yield of 96%. What is the PPM Level?
3. What is the PPM level for DPU of 2.5?
EXERCISES
198
199
+Ensure consistent sign in and sign out of goods.
+Identify rush periods and level load activity accordingly.
Step #1: Get Organized
+Arrange warehouse/ store in a logical and orderly manner.
-Appropriate shelving/ racking
-High- frequency items closest to entry / exit
-Group like products
-Clearly identified names and code numbers
+Ensure a high standard of housekeeping at all times.
+Use visual management techniques.
-Location indicators
-Reorder indicators
-Line marking
200
Step #2: Apply the Fundamentals with Rigor
+Use the fundamentals of supply chain management and stock
calculation to set and review holding requirements.
Step #3: Focus on Function, not Cost
+Recognize that the function of inventory is to maintain a
supply promise to customers and manage the inventory to fulf1l
this need.
-Inventory that does not move does not fulfi1 this
need
-Base stocking policy on movement and service
and not cost of product .
201
Step #4: Identify and Focus on Leverage Points
+ The key steps of cost in inventory are the ownership of the item and
the length of time of ownership.
+ To minimize cost, activities should focus on eliminating ownership
(as opposed to access) and/or minimizing the time between gaining
ownership and shipping/using the item.
Step #5: Limit and Prioritize Resources
+Limiting the funds available for investment in inventory will drive the
need to prioritize inventory and extract greater value from the
investment.
202
Step #6: Work on the 1% errors
+A key 1% error in inventory management is the tracking of
receipts and delivery. By ensuring that the systems are followed and
records kept, the data will be available to make sound stocking
decisions.
Step #7: Eliminate Duplication
+This includes duplication of items, but also duplication of locations
and duplication of safety stock.
Step #8: Question Everything
+The assumptions made when inventory levels were first set may no
longer be valid. Have supply dynamics changed? Have customer
needs/usage changed? Has our appetite for risk changed?
+Review inventory assumptions on a regular basis.
203
Step #9: Take Some Chances
+ Seek to use innovations that do not have an obvious direct
payback. For example, apply visual management techniques-
+ Arrange for consignment stocks if this has not been your
policy. Remember to understand and manage the risks.
Step #10: Ignore Tradition
+ Review what is preventing further improvement and change it!
+ Review e-business changes that might provide further
opportunity.
204
205
Andon:
A Japanese word meaning light or lantern. It is triggered by an
abnormal condition or machine breakdown. It is a form of
communication indicating that human intervention is required. Many
times these are presented like a stoplight (red = stop, yellow = caution,
green = go).
Poke yoke (error Proofing):
low cost, highly reliable devices or innovations that can
either detect abnormal situations before they occur in a production
process, or, if they occur, will stop the machines or equipment and
prevent the production of defective products, those that prevent errors
by an operator, and those that detect errors by an operator and give a
warning, and those that defects in products and prevent further
processing of them.
206
Heijunka:
A method of leveling production for mix and volume.
jidoka:
This defect detection system automatically or manually stops
production and/or equipment whenever an abnormal or defective
condition arises. Any necessary improvements can then be made by
directing attention to the stopped equipment and the worker who
stopped the operation. The jidoka system posits faith in the worker as a
thinker and allows all workers the right to stop the line on which they
are working. It is now called autonomation in English.
Continuous flow production:
A production system where products flow continuously
rather than being separated into lots. No work in process is built up.
207
Manufacturing resource planning (MRP II):
MRP as just defined, plus capacity planning and a finance interface to
translate operations planning into financial terms, and a simulation
tool to assess alternate production plans. ERP is enterprise wide
resource planning waste.
Material requirements planning (MRP):
A computerized system typically used to determine the quantity and
timing requirements for production and delivery of items (both
customers and suppliers). Using MRP to schedule production at
various processes will result in push production, since any
predetermined schedule is only an estimate of what the next process
will actually need.
Overall equipment effectiveness (oee):
A machines overall equipment effectiveness is the product of
its availability. Performance efficiency, and first pass yield.
208
First- pass yield (fpy):
The time required to complete one cycle of an operation. The
time elapsing between a particular point in one cycle and the same
point in the next cycle. If cycle time for every operation in a complete
process can be reduced to equal takt time, products can be made in
single-piece flow.
Cycle time
The quality rate, is the percentage of units that complete a
process and meet quality guidelines with out being scrapped, rerun,
retested, reworked, returned, or diverted into an off-line repair area.
FPY is calculated by dividing the units entering the process minus the
defective units by the total number of units entering the process.
209



Mistake - Proofing emphasizes the detection and correction of mistakes before
they become defects delivered to customers. It puts special attention on the one
constant threat to any process: human error. Mistake Proofing is simply to pay
careful attention to every activity in the process and to place checks and problem
prevention at each step. Its a matter of constant, instantaneous feedback, rather
like the balance and direction data transmitted from a cyclists ears to brain,
keeping his or her bike upright and on the path.
MISTAKE - PROOFING (OR POKA YOKE)
210
USES OF MISTAKE PROOFING
Mistake Proofing can be used to:
Fine tune improvements and process designs from DMAIC projects.
Gather data from processes approaching Six Sigma performance.
Eliminate the kinds of process issues and defects needed to take a
process from 4.5 to 6 Sigma.
BASIC STEPS IN MISTAKE PROOFING
Mistake Proofing is best applied after completion of a through FMEA
prediction and prevention review. Then we can
Identify possible errors that might occur despite preventive actions.
Determine a way to detect that an error or malfunction is taking place or
about to occur.
Identify and select the type of action to be taken when an error is detected.

211
DIFFERENT KIND OF ERRORS
Forgetfulness Rail gate closing
Errors due to misunderstanding Steps on break car with auto transmission
Errors in identification Bill amount
Errors made by Amateurs
Wilfull errors No cars at sight crossing in red.
In advertent errors Crossing without noticing
Errors due to slowness Delays, step on break
Errors due to lack of standards To discretion
Surprise errors Malfunction without warning
Intentional errors Crimes
Mistake happen for many reasons, but almost all can be prevented if we take the
Time to identify when and why they happen.
212
The basic types of Mistake Proofing Device are:
Control:
An action that self corrects the process, like an automatic spell checker /
corrector.
Shutdown:
A procedure or device that blocks or shuts down the process when an error
occurs. Example. The automatic shutoff feature of a home iron.
Warning:
This alerts the person involved in the work that something is going wrong.
Example. A seat belt buzzer. So is a control chart that shows that a process may
be out of control.
213
Some common types of Mistake Proofing measures include:
Color-and shape-coding of materials and documents
Distinctive shapes of such key items as legal documents
Symbols and icons to identify easily confused items
Computerized checklists, clear forms, best-in-class, up-to-date procedures and
simple workflows will help to prevent errors from becoming defects in the
hands of customers.
214

MISTAKE PROOFING DOS AND DONTS
DOs:
- Try to imagine all conceivable errors that can be made.
- Use of all your creative powers to brainstorming clever ways to detect
and correct errors as part of the work process itself.
DONTS:
- Fall into the to error is human mindset.
- Rely on people to catch their own errors all the time.
215
216
Vision Statement
Broad Objectives
Foster a commitment to continuous improvement with in- creased visibility of how
we use time. Reduce or eliminate activities that do not add value.
Foster a commitment to a high level of quality-doing the right things right the first
time.
Apply state-of-the-art tools for waste reduction and quality improvement.
Change the management culture from "traditional" to "team oriented," enhancing
employee involvement at all levels.
Employ statistical management techniques as a new language for all employees,
identifying problems when they occur, and resolving them at the lowest possible level
in the organization.
Train employees to be team leaders, facilitators, and team members in accordance
with the new culture.
Foster innovation and commitment to being world class all levels.
Promote the use of consensus decision- making whenever possible as the foundation
for the new culture.
217
Market Imperatives
Compress lead-time from six weeks to two weeks.
Improve on-time delivery performance from 75 to 95 percent.
Current Conditions
Backlog: 2-3 weeks (shippable orders)
Setup times: punch, 45 minutes
brake, 40 minutes
hardware, 30 minutes
spot weld, 25 minutes
Material management: batch-push
Subcontract lead times: 1-2 weeks
Lot sizes: 90 days
Inventory turns: 8 turns/year
Lead time: 5-8 weeks (including outside processes)
Facilities layout: process functional, multiple buildings
Quality: Cost = 2% of sales
Productivity: Rs. 8500 per employee/year (Rs. 12000 direct labour)
218
To be Vision
Backlog: 3 days maximum (shippable orders)
Setup times: punch, 9 minutes
brake, 12 minutes
hardware, 5 minutes
spot weld, 9 minutes
Material management: demand pull
Subcontract lead times: 2-3 days
Lot sizes: 2 weeks
Inventory turns: 20 turns/year
Lead time: 9-11 days (including outside processes)
Facilities layout: cellular, single building
Quality: cost < 1 % of sales
Productivity: Rs. 10000 per employee/year (Rs. 130000 direct labor)
219
Model-line personnel will exhibit the following characteristics:
Accept only zero quality rejections;
Are not passive witnesses;
Keep the flow;
Continually suggest improvement;
Are interested in production goals;
Know how to do their jobs;
Know how to do others' jobs;
Can stop the line;
Assist their teammates.
Predict and avoid problems;
Measure their own output;
Measure their own quality;
Understand the product;
Understand the process;
Call in resources as needed;
Communicate, cooperate, collaborate; and
Are team players and team leaders.
220
Role of Steering Team:
Visits other successful companies;
Provides organizational development through training;
Generates, revises, maintains the vision;
Develops and communicates the vision and plan, formally and informally;
Acts as strong sponsor for the entire improvement process;
Remains visible in the implementation process;
Sets the example (good at the fundamentals);
Demonstrates the new values of absolute quality and waste elimination;
Models pro-active behavior;
Begins and ends meetings on time;
Uses consensus decision-making;
Supports "do it right the first time";
Directs, informs, and guides the continuous improvement coordinator, outside
consultants, and model-line team in a collaborative manner;
221
Cond
Resolves disagreement by consensus;
Meets periodically (not less than monthly) to review the progress of
the program;
Encourages and sponsors program activities and strongly sponsors
the successful adaptation of the new philosophy at The Jobbe Shoppe;
Chooses problem/opportunity areas for teams to work on;
Creates guidelines and provides support to team (for example,
defines boundaries, expectations);
Meets with team leaders and program coordinator to review
problem statement, milestones, and action plans;
Manages change by spreading and demonstrating (by action) the
new values; and
Ensures the proper resources are assigned to accomplish the task
within budget and schedule
222
Role of the Continuous Improvement Coordinator
Coordinates with steering team members;
Reports status and problem areas to facilitate corrective action when
needed;
Establishes ongoing education program in collaboration with steering
team;
Ensures that teams have a fully developed project plan;
Supports the teams in using quality improvement processes, applying
Just-in Time (JIT) techniques, and developing as a team;
Aids the team leaders in preparing for meetings, provides feedback on
team meetings; Provides a link between team leaders and the steering
team;
Keeps up to date on world-class technologies;
Instructs on general problem-solving techniques;
Prepares and delivers team training on selected topics, serves as
resource person to supervisors, team leaders, and members;
223
Cond
Monitors progress of the teams, consults on use of techniques;
Shares experiences and results of team activities with others; and
Observes group dynamics and works with team leader to design and
implement activities that contribute to team health;
Leads the team through the problem -solving process reflected in the
project plan and schedule;
Teaches/refreshes quality improvement and waste reduction JIT
techniques;
Communicates team progress to the team;
Communicates/coordinates with supervisor and program coordinator,
especially before and after team meetings;
Shares experience and knowledge;
Fulfills administrative duties; and
Encourages team member participation.
224