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Finding the ROI in
Your Quality System

     Louis Halvorsen, CTO
     Northwest Analytics

     August 11, 2011
About Northwest Analytics
Quality Analytics software company
based in Portland, Oregon with
offices in Shanghai, China

• Global leader in SPC solutions for
over 20 years

• 3000-company customer base

• Focus on Enterprise Manufacturing
Intelligence
Why Have a Solid ROI Story?

•   Justification the biggest barrier to project approval.
•   All spending decisions are ultimately financial.
•   The higher the cost, the more likely that someone important
    will want a clear ROI before signing off.
•   All opportunities to spend money to improve company
    operations compete for the same dollars and resources.
•   Most proposals for other manufacturing applications will
    include an ROI study – often provided by the vendor.
Typical Quality System Project
       Justification and Selection Process
1) Management comes up with requirement for new or
   upgraded quality system.
2) Quality department told to evaluate and recommend
   systems.
3) Quality evaluates potential systems, selects short list,
   identifies vendor and gets quote.
4) Quality submits proposal to Management.
5) Management adds quality system to list and assigns
   priority.
6) Quality proposal loses to Manufacturing, IT, and HR
   programs with specific ROI.
Justifications Without Specific ROI

• Customer / Supply-chain Requirement
• Manufacturing Systems Upgrade
   • Improve value of process data
   • Consistent across sites
• Current system past useful life
• Seems like the right thing to do
Our Favorite – Faith in SPC
The comprehensive application of SPC always:
   - Results in reduced variation
   - Creates a more predictable process
    Reduces costs while improving quality
Deming: The continuous pursuit of reduced variation –
even beyond seeming economic justification - will always
pay off.
This requires faith in SPC by upper management.
However, “faith” drove the majority of 6-sigma adoptions.
Common ROI Targets
• Overfill / Give-away
• Defect reduction
• Process startup, restart improvement
• Energy cost reduction
• Reduced rework
• Lower warranty costs
• Early problem detection
• Reduced manpower requirement
Quantifying ROI

• ROI = FCQ - ICQ
• To determine ROI:
    Determine current cost of poor quality
    Estimate final cost after implementing quality system

       - Rule of thumb
       - Study or pilot project
Quantifying ROI
Rule-of-Thumb: “Application of SPC will reduce variation by xx%”
   - Easier and cheaper than running a pilot or trial
   - Also easy to challenge, hard to prove


Pilot project: Limited application of system or technique
   - Best proof of potential ROI, easy to defend
   - Must select high-value target
   - Requires funding, resources, time, cooperation
   - May not get desired results (bad luck, workers focused, wrong
   opportunity, not enough time, other agendas)
Three Examples

Analyzing assembly defects
   - Reducing defects increases yield, reduces rework costs

Reducing fill-weight variation
   - Identifying sources of variation, optimizing process reduces overfill

Reducing startup and changeover times
   - Improving startup/changeover procedures increases yields
Defect Reduction Example

Quality problems in complex assembly process
   - Poor yield due to rejected assemblies
   - High re-work costs
   - Delayed shipments

- Easy to quantify costs, but…
   - The overall nature of the defects is poorly understood
   - Hard to focus on the right issues
Defects Identified, Counts Recorded
Pareto Ranks Defects by Count
Cost Weighted Pareto
Charts Show Candidates for Improvement

                    Breaks show many samples with
                    unusually high defect rates.
Charts Show Candidates for Improvement

                                    “Breaks” show many samples with
                                    unusually high defect rates.




“Rotation” defects are in perfect
control.
SPC critical to solving problems

BREAKS – SPC shows that a “special cause” affects
the process at specific times with a measurable result.
You can focus on the specific high-defect events to find
the source of the problem.

ROTATION - Defects are consistent and the defect rate
is built into the process (2.6%). It does no good to look
at high and low defects – the process must be changed.


Two very big problems, two very different approaches.
Estimating defect-reduction ROI

• Cost-based Pareto identifies key issues
• SPC points out source of problem, guides solution


Cost of Rotation and Breaks defects of 3 month sample
(10% of total production) = $14,410
Projected cost for total production = $144,100
Assuming 35% reduction in variation-caused defects,
total savings would be $50,435 per quarter, or over
$200,000 per year.
Fill Weight Study

• Key Cost-of-Quality is Overfill
• Process exhibits excessive Fill Variation
   - Filler intentionally set to overfill to avoid underfill and
   associated regulatory issues.
   - Process unpredictable, underfill still a problem
• Key cost: “give away”
• Other costs: Packaging problems, material accountability
Package Fill Weight
Histogram Shows Overfill and Underfill Issues
SPC Charts Indicate Special Causes
Histogram results calculate overfill cost


                                   Cost based on samples




Cost estimated from distribution
Application of SPC: Variation Reduced
Adjust Process Target Closer to LSL
Initial and Final Process Variation
Estimated Cost Savings
   Overfill Cost per 8-hour Shift based on 12,000 Units
           Cost estimated at $ 0.10 per 0.01 weight units




Estimated Original Overfill Cost per Shift = $ 576 - $ 804
Overfill Cost per Shift after process improvements = $ 337
Final Overfill Cost per Shift after adjusting to Target = $ 34
Total Savings per Shift = $ 542 - $ 770
Total Savings per Year = $ 280,000 - $ 440,000
Process Startup, Restart Improvement
A high-speed process that makes multiple products has
historically required long startup and change-over times
to become stable enough for normal production.

 • Process startup takes 60-90 minutes to stabilize
 • Product change-over can take up to 2 hours
 • Key costs:
     - Scrap / Low Yields
     - Manpower & Equipment Utilization
 • Easy to calculate costs
Process Startup Issues Solution

The solution is to apply Analytics (SPC, Process
Capability Analysis) to monitor the Startup and Restart
processes and make informed decisions.

 • Use higher sampling rates for Startup/Restart
 • Apply SPC to monitor process variation
 • Use Capability Analysis to determine when OK to start
 • Start process when Stable, Predictable, Capable
Process Startup Analytics

                         SPC indicates when
                         process becomes stable




Capability Analysis
indicates when process
becomes capable
Process Startup Improvement Results
Result:
• Startup time reduced to 30 minutes
• Changeover time reduced to 45 minutes
• More predictable initial run quality, fewer shutdowns

Benefits:
 • 1 - 1.5 hours more production time per run
 • Fewer start/stop/restart incidents, less scrap
 • Better manpower & equipment utilization
 • Faster changeovers allows more production flexibility
Conclusions

Understanding ROI is critical for project approval
Quality Departments have unique ROI issues
Determining ROI using analytics can has its challenges,
but can create compelling ROI stories
Quality Departments also have a some of the best data
and opportunities to show significant ROI
www.nwasoft.com

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Finding the ROI in Your Quality System

  • 1. Finding the ROI in Your Quality System Louis Halvorsen, CTO Northwest Analytics August 11, 2011
  • 2. About Northwest Analytics Quality Analytics software company based in Portland, Oregon with offices in Shanghai, China • Global leader in SPC solutions for over 20 years • 3000-company customer base • Focus on Enterprise Manufacturing Intelligence
  • 3. Why Have a Solid ROI Story? • Justification the biggest barrier to project approval. • All spending decisions are ultimately financial. • The higher the cost, the more likely that someone important will want a clear ROI before signing off. • All opportunities to spend money to improve company operations compete for the same dollars and resources. • Most proposals for other manufacturing applications will include an ROI study – often provided by the vendor.
  • 4. Typical Quality System Project Justification and Selection Process 1) Management comes up with requirement for new or upgraded quality system. 2) Quality department told to evaluate and recommend systems. 3) Quality evaluates potential systems, selects short list, identifies vendor and gets quote. 4) Quality submits proposal to Management. 5) Management adds quality system to list and assigns priority. 6) Quality proposal loses to Manufacturing, IT, and HR programs with specific ROI.
  • 5. Justifications Without Specific ROI • Customer / Supply-chain Requirement • Manufacturing Systems Upgrade • Improve value of process data • Consistent across sites • Current system past useful life • Seems like the right thing to do
  • 6. Our Favorite – Faith in SPC The comprehensive application of SPC always: - Results in reduced variation - Creates a more predictable process  Reduces costs while improving quality Deming: The continuous pursuit of reduced variation – even beyond seeming economic justification - will always pay off. This requires faith in SPC by upper management. However, “faith” drove the majority of 6-sigma adoptions.
  • 7. Common ROI Targets • Overfill / Give-away • Defect reduction • Process startup, restart improvement • Energy cost reduction • Reduced rework • Lower warranty costs • Early problem detection • Reduced manpower requirement
  • 8. Quantifying ROI • ROI = FCQ - ICQ • To determine ROI:  Determine current cost of poor quality  Estimate final cost after implementing quality system - Rule of thumb - Study or pilot project
  • 9. Quantifying ROI Rule-of-Thumb: “Application of SPC will reduce variation by xx%” - Easier and cheaper than running a pilot or trial - Also easy to challenge, hard to prove Pilot project: Limited application of system or technique - Best proof of potential ROI, easy to defend - Must select high-value target - Requires funding, resources, time, cooperation - May not get desired results (bad luck, workers focused, wrong opportunity, not enough time, other agendas)
  • 10. Three Examples Analyzing assembly defects - Reducing defects increases yield, reduces rework costs Reducing fill-weight variation - Identifying sources of variation, optimizing process reduces overfill Reducing startup and changeover times - Improving startup/changeover procedures increases yields
  • 11. Defect Reduction Example Quality problems in complex assembly process - Poor yield due to rejected assemblies - High re-work costs - Delayed shipments - Easy to quantify costs, but… - The overall nature of the defects is poorly understood - Hard to focus on the right issues
  • 15. Charts Show Candidates for Improvement Breaks show many samples with unusually high defect rates.
  • 16. Charts Show Candidates for Improvement “Breaks” show many samples with unusually high defect rates. “Rotation” defects are in perfect control.
  • 17. SPC critical to solving problems BREAKS – SPC shows that a “special cause” affects the process at specific times with a measurable result. You can focus on the specific high-defect events to find the source of the problem. ROTATION - Defects are consistent and the defect rate is built into the process (2.6%). It does no good to look at high and low defects – the process must be changed. Two very big problems, two very different approaches.
  • 18. Estimating defect-reduction ROI • Cost-based Pareto identifies key issues • SPC points out source of problem, guides solution Cost of Rotation and Breaks defects of 3 month sample (10% of total production) = $14,410 Projected cost for total production = $144,100 Assuming 35% reduction in variation-caused defects, total savings would be $50,435 per quarter, or over $200,000 per year.
  • 19. Fill Weight Study • Key Cost-of-Quality is Overfill • Process exhibits excessive Fill Variation - Filler intentionally set to overfill to avoid underfill and associated regulatory issues. - Process unpredictable, underfill still a problem • Key cost: “give away” • Other costs: Packaging problems, material accountability
  • 21. Histogram Shows Overfill and Underfill Issues
  • 22. SPC Charts Indicate Special Causes
  • 23. Histogram results calculate overfill cost Cost based on samples Cost estimated from distribution
  • 24. Application of SPC: Variation Reduced
  • 25. Adjust Process Target Closer to LSL
  • 26. Initial and Final Process Variation
  • 27. Estimated Cost Savings Overfill Cost per 8-hour Shift based on 12,000 Units Cost estimated at $ 0.10 per 0.01 weight units Estimated Original Overfill Cost per Shift = $ 576 - $ 804 Overfill Cost per Shift after process improvements = $ 337 Final Overfill Cost per Shift after adjusting to Target = $ 34 Total Savings per Shift = $ 542 - $ 770 Total Savings per Year = $ 280,000 - $ 440,000
  • 28. Process Startup, Restart Improvement A high-speed process that makes multiple products has historically required long startup and change-over times to become stable enough for normal production. • Process startup takes 60-90 minutes to stabilize • Product change-over can take up to 2 hours • Key costs: - Scrap / Low Yields - Manpower & Equipment Utilization • Easy to calculate costs
  • 29. Process Startup Issues Solution The solution is to apply Analytics (SPC, Process Capability Analysis) to monitor the Startup and Restart processes and make informed decisions. • Use higher sampling rates for Startup/Restart • Apply SPC to monitor process variation • Use Capability Analysis to determine when OK to start • Start process when Stable, Predictable, Capable
  • 30. Process Startup Analytics SPC indicates when process becomes stable Capability Analysis indicates when process becomes capable
  • 31. Process Startup Improvement Results Result: • Startup time reduced to 30 minutes • Changeover time reduced to 45 minutes • More predictable initial run quality, fewer shutdowns Benefits: • 1 - 1.5 hours more production time per run • Fewer start/stop/restart incidents, less scrap • Better manpower & equipment utilization • Faster changeovers allows more production flexibility
  • 32. Conclusions Understanding ROI is critical for project approval Quality Departments have unique ROI issues Determining ROI using analytics can has its challenges, but can create compelling ROI stories Quality Departments also have a some of the best data and opportunities to show significant ROI