Operation Management Project
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Week3.pptxProcess Prioritization Pareto Principle and Pareto Charts FMEA Quality Function Deployment (QFD) Financial Impact Process Improvement: Methodologies Six Sigma Lean Theory of Constraints
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Process Prioritization
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The “80/20” Rule:
Pareto charts illustrate the concept that, for any given distribution of the results, the majority of the distribution (80%) is determined by a small part (20%) of the potential contributors or causes
Focuses efforts on the problems that offer the greatest potential for improvement by showing their relative frequency or size in a descending graph
Pareto Principle (80/20 Rule)
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20% of the time expended produced 80% of the results
80% of your phone calls go to 20% of the names on your list
20% of the streets handle 80% of the traffic
80% of the meals in a restaurant come from 20% of the menu
20% of the paper has 80% of the news
80% of the news is in the first 20% of the article
20% of the people cause 80% of the problems
80% of your profits come from 20% of your customers
80% of your complaints come from 20% of your customers
80% of your profits come from 20% of the time you spend
80% of your sales come from 20% of your products
80% of your sales are made by 20% of your sales staff
20% of the features of an application are used 80% of the time
20% of software bugs create 80% of the errors and crashes
Business
General Examples
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Notice: “Frequency” column data arranged in descending order
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Cumulative %
line
% against
this axis
Categories
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Pareto Chart
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Failure Modes & Effects Analysis (FMEA)
A risk assessment method to identify, analyze, prioritize and document potential failure modes, their effects on a process, product or system and the possible failure causes.
It is a living document that needs to be reviewed and updated whenever a process is changed
FMEA Answers These Questions:
What the customer will experience if a key process input variable fails?
Which action needs to be taken to minimize risk?
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Failure Modes & Effects Analysis (FMEA)
Consider all failure modes of a system or process.
Determine the effects of failure modes.
Prioritize the failure modes based on:
Criticality
Frequency of occurrence
Ability to escape detection
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Definition of Terms
Failure Mode – the way in which a specific process input fails
If it is not detected and either corrected or removed, it may cause a negative “Effect” to occur.
Can be associated with a defect (in discrete manufacturing) or a process input variable that goes outside of specification.
Anything that an operator can see that’s wrong is considered a Failure Mode
Note 1: Just because a dimension is out of spec (a failure mode), it does not imply with 100% certainty that the product will not function (an effect)
Note 2: Just because the process is improperly set up (a failure cause), it does not imply with 100% certainty that the dimension will be out of spec (a failure mode)
Definition of Terms
Effect – The adverse impact on customer requirements. Generally has an external customer focus, but can also include downstream processes
A product or process that does not perform satisfactorily to design
Cause – Source of process variation that causes the Failure Mode to occur. How a specific part of the process (operation or component) can result in a failure mode.
A worn spindle (cause) may cause a dimension to be out of tolerance (mode) which may cause the part to not fit (effect)
Definition of Terms
Severity – An assessment of how serious the Failure Effect (due to the Failure Mode) is to the customer
Occurrence – An assessment of the likelihood that a particular cause will happen and result in the Failure Mode
Detection – An assessment of the likelihood that the current controls will detect the cause of the failure mode or the failure mode itself, should it occur, thus PREVENTING the Failure Effect from reaching your customer
The customer in this case could be the next operation, subsequent operations, or the end user
Definition of Terms
Current Controls
Systematized methods/devices in place to prevent or detect failure Modes or Causes (before causing effects)
Prevention consists of mistake proofing, automated control and set-up verifications
Controls consist of audits, checklists, inspection, laboratory testing, training, SOPs, preventive maintenance, etc.
| Severity | Occurrence | Detection |
| Hazardous without warning | Very high and almost inevitable | Cannot detect or detection with very low probability |
| Loss of primary function | High repeated failures | Remote or low chance of detection |
| Loss of secondary function | Moderate failures | Low detection probability |
| Minor defect | Occasional failures | Moderate detection probability |
| No effect | Failure unlikely | Almost certain detection |
High 10
Low 1
Rating
| Severity | Occurrence | Detection |
| Hazardous without warning | Very high and almost inevitable | Cannot detect or detection with very low probability |
| Loss of primary function | High repeated failures | Remote or low chance of detection |
| Loss of secondary function | Moderate failures | Low detection probability |
| Minor defect | Occasional failures | Moderate detection probability |
| No effect | Failure unlikely | Almost certain detection |
Note well: Determine if your company has rating scales and rules. In some companies, rating a “10” on severity may have legal consequences.
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Prioritizing Failure Modes
Severity, frequency of occurrence, and escaped detection are rated on relative scales.
Generic scale is useful as starting point, but revision is necessary to fit the application.
Risk Priority Number (RPN) =
Severity X Frequency X Detection
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Note: This is a sample scale and must be revised to fit your application of FMEA
Severity Scale
No effect on performance
Minor loss of performance with negligible effect on output
Minor loss of performance
Reduced performance
Minor inability to meet customer requirements
Inability to meet customer requirements
Cause serious customer dissatisfaction
Cause a failure
Break regulations or other law
Cause an injury
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Frequency of Occurrence/Probability Scale
| Once every 5 - 10 years | Less than 2/1,000,000,000 |
| Once every 3 - 5 years | Less than 3/10,000,000 |
| Once every 1 - 3 years | Less than 6/1,000,000 |
| Once per year | Less than 6/100,000 |
| Once every 6 months | Less than 1/10,000 |
| Once every 3 months | Less than 0.03% |
| Once per month | Less than 1% |
| Once per week | Less than 5% |
| Once every 3 - 4 days | Less than or equal to 30% |
| Once per day | Greater than 30% |
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Ability to Escape Detection Scale
Immediate detection
Easily detected
Moderately easy detection
Quick detection by Statistical Process Control (SPC)
Detected by SPC
Detected by inspection and error-proofing
Detected by manual inspection
Frequently undetected
Very difficult to detect
Cannot be detected
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Example
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Creating a Prioritization Matrix
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Selecting the Vital Few from the Trivial Many
Quality Function Deployment (QFD): A tool used to show the relationship between a set of requirements/criteria and a set of alternatives.
Prioritization Matrix
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List of processes to be prioritized
Prioritization criteria. Those things that are important to the organization
The Weight of each criterion. Scale of 1-10 or 0-100%
Process score. The strength of the relationship between the process option and the criterion (usually scored 0,1,3,9)
End Section 1
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Financial Value Estimation
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Why Worry about Financial Benefit?
Tell Your Project Story!
Gain initial and ongoing support
Prioritize among other projects
Measure and track progress
Validate value of the effort!
Ask Yourself 3 Key Questions:
What good things happen because of my project?
What bad things stop happening because of my project?
What bad things do we avoid because of my project?
Process Improvement Value
Improve Quality
Reduce Cost
Reduce Risk
Increase Revenue
Process Improvement projects produce several types of value:
Types of Benefits
Enable Good
Revenue
Stop Bad
Cost
Avoid Bad
Additional Cost investments
Additional Headcount
Business risk
Regulatory risk
Waste
Quality defects
Employee Morale
Increased productivity
Expanded capacity
Improved Service level
Customer dissatisfaction
Category of Benefit
| Hard Benefits | |
| Salaries & Benefits | Dollar amount of FTE expenses (including salaries, fringe benefits, bonuses) eliminated or reduced. |
| Other Operating expenses | Dollar amount of other expenses eliminated. (For example: Occupancy; Supplies, postage & shipping; data processing; public relations & travel; or other misc expenses.) |
| Increased Revenue | Dollar amount of revenue created. |
| Soft Benefits | |
| Increased Capacity | Dollar value of available FTE or other resources/assets to be used for other tasks. |
| Cost avoidance | Dollar amount avoided because cost was not incurred or capital investment was not made. |
| Intangible Benefits | |
| Increased employee satisfaction | Calculate based on assumptions. |
| Increased customer satisfaction | Calculate based on assumptions. Customer good will |
| Within regulatory compliance | Calculate based on assumptions, especially operational risk assessments. |
Hard or Soft
| Hard Benefits |
| Hard cost savings equate to a reduction in head count, or the number of employees that support the business process, thus lowering the labor cost. The reduction in employee headcount may result from a layoff or attrition, but the overall number of employees supporting the business process declines and thereby lowers cost. |
| Soft Benefits |
| Signify a reduction in the number of employees who support the business process, but in this case, the affected employees do not leave their current department. Instead of laying them off or moving the employees to different jobs, these employees shift their workload to more value-added work. The cost leaves the process, but not the department. |
Estimating Cost of a Process
The 3 parts of a process cost:
People
Tools
Overhead
Benefit Estimation Process
Begin with the 3 key questions (enable good, stop bad, avoid bad)
Define a baseline of what is happening today (quantitative and qualitative)
Estimate how the current baseline could be improved. Validate and label assumptions with key stakeholders.
Estimate the value and benefit associate with an improvement over baseline. Use placeholders if you don’t have exact values and validate over time.
Understand how the sponsor intends to use the benefit (reduce budget?, increase capacity?, pursue innovation?)
Continue to refine and revise throughout project lifecycle
Better to be directionally correct than precisely wrong!
“It’s A Wonderful Life” Estimation
Process Improvement Methodologies
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Why Follow a Methodology
A methodology provides a very structured and repeatable framework that will allow for consistent results.
Methodology:
A body of practices, procedures, and
rules used by those who work in a
discipline or engage in an inquiry;
a set of working methods.
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Example – Scientific Method
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Difference Between Tools and Methodology
Methodology:
A methodology provides a very
structured and repeatable
framework that will allow for
consistent results.
Tool:
A tool is one of the many
mechanisms for achieving
a methodology.
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Process Improvement Methodologies
Toolbox for Process Improvement
Methodologies provide tools that can be applied as necessary…
Six Sigma, Lean, and Theory of Constraints
“Uncontrolled variation is the enemy of quality.”
– W. Edwards Deming
σ sigma is a letter of the Greek alphabet.
Mathematicians use this symbol to signify Standard Deviation, an important measure of variation.
Variation designates the distribution or spread about the average of any process.
The variation in a process refers to how tightly all the various outcomes are clustered around the average. No process will produce the EXACT same output each time.
Wide Variation
Narrow Variation
Meaning of Sigma
The probability of creating a defect can be estimated and translated into a “Sigma” level.
What is Six Sigma…as a Measure?
*LSL – Lower Spec Limit
*USL – Upper Spec Limit
The higher the sigma level, the better the performance. Six Sigma refers to a process having 6 Standard Deviations between the average of the process center and the closest specification limit or service level.
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Tollgate Review
What is the purpose of a Tollgate Review?
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At the end of this section you will have the knowledge of:
Who is involved in tollgate reviews?
What is a tollgate review?
When are tollgate reviews conducted?
Where are tollgate reviews held?
What are the deliverables for tollgate reviews?
Typical questions asked during tollgate reviews
Red Flags associated with tollgate reviews
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Who is involved:
Project Sponsor (Value Stream Champion)
Black Belt / Green Belt (Event coach)
Project Lead
Optional participants
Executive Leadership
Project Co-lead
Key team members (Not entire team)
What are They?
Tollgate reviews are formal status reviews and decision making meetings held at:
End of each event phase for DMAIC Projects event
Critical points in the process for Lean / Kaizen event
Consists of a team’s presentation followed by questions and discussions
Normally 15-20 minutes for the team presentation
15-45 minutes allotted afterwards for questions and discussion
Purpose:
Tell the Story
Review the progress made on the event
Ensure the event is adequately managed, resourced and supported
All significant data is being collected
Means to address problem areas or successes
Define any risks or barriers to completing event on time
Determine if the event should continue, placed in hibernation or shut down
Provide formal documentation of event progress
Tollgate Reviews for Projects:
Conducted after each phase of the DMAIC model
Define – Approve Project Charter, SIPOC, Scope
Measure – Provide Current State information, what data that was collected and validates all significant information collected
Analyze – Present root cause to process owner for validation, proposed solutions, and recommended process changes for approval
Improve – Provide status of implemented improvements
Control – Provides sustainment plan / measurement criteria to monitor progress and turns project responsibility over to process owner
Customers Feel Variation, Not Average
LEAN
Lean Methodology
“Lean Thinking” is a management philosophy focusing on reduction of the 8 wastes in products and services. By eliminating waste, quality is improved, production time is reduced, and cost is reduced.
What is Lean Thinking ?
Lean Principles
Value has been specified
From the Customer’s perspective
The Value Stream has been identified
For each product/service
The product/service Flows without interruptions
The Customer can Pull value from the process
Continuous pursuit of Perfection