Six Sigma Case Study

v.2

Dr. Ron Tibben-Lembke

SCM 494
Six Sigma Case Study - POI

 Paper Organizers International

 Filing, organizing, and paper shuffling services
 Uses MSD (metallic securing devices)
 Increasing complaints from the Paper Shuffling
Department (PSD) about MSDs breaking and
failing to keep papers together
 Customers’ papers can get mixed together
 Purchasing wants to eliminate MSD complaints
Mission Statement

 “Put the right information in the right place.”

 Management created a list of objectives and
projects that will support those objectives
 President Director of Paper Shuffling Dept
Business Business Area Area Potential 6
Objectives Indicators Objectives Indicators Sigma projects
Increase # # orders per Increase # No. orders in New customer
of orders Month orders in PSD / mo. promotions
(c chart) PSD (c chart) project
1. avg. # Increase # 1. avg. # Existing
Increase # services used Services services used customer
of POI per customer, used by each per PSD promotions
services per quarter customer in cust, per Q project
used by each 2. St dev. of PSD 2. St dev. Of
customer # serv. used # serv. used
(x-bar and s) (x-bar and s)

Minimize Prod costs Minimize Production

MSD quality
production per month production Costs in PSD/mo
project
costs (I-MR chart) costs in PSD (I-MR chart)

Eliminate # employee Eliminate PSD # PSD employee Employee

employee complaints per employee Complaints/mo Morale project
complaints month (c chart) complaints (c chart)
Current Costs

 Management considers costs production

costs in PSD to be too high
 Avg. Production costs of $1.1m per month
 Standard deviation is $116k.
 R-bar / d2 = $116,672
 Average is “too high” but process is under control
 I and MR Chart for Production C

1400000 UCL=1393879
1300000
Individual Value

1200000
1100000 Mean=1096880
1000000
900000
800000 LCL=799881

Subgroup 0 10 20 30 40 50 60 70

400000
UCL=364863
300000
Moving Range

200000

100000 R=111672

0 LCL=0
Production costs Normally
distributed
Histogram of Production Costs in PSD

10
Fr equen cy

0
890000 930000 970000 1010000 1050000 1090000 1130000 1170000 1210000 1250000 1290000

Production Costs in PSD

 Prioritizing Six Sigma
Projects Potential Six Sigma Projects

Existing
New Customer Customer MSD Employee
Business objective Weight Promotions Promotions Quality Morale

Increase # orders 0.35 3 3 0 0

Increase # POI services

used by each customer 0.10 1 3 0 0
Minimize production
costs 0.40 0 0 9 3

Eliminate employee
complaints 0.15 0 0 9 9

Weighted average of 1.15 1.35 4.95 2.55

potential
Starting MSD Project
Champion and process owner make initial charter.
1. What is the name of the process? MSD purchasing
2. What is the aim? Purchase MSDs that improve
productivity and morale of PSD
3. What is economic rationale?
a. Why do it at all?
 Un-durable clips (<4 bends): lost papers, frustrated
employees lead to higher processing costs, inefficient
labor costs (60% cannot withstand test)
 Functionality (broken in box): sorting costs, frustrated
employees (60% of boxes have >5 broken MSDs)
Additional charter questions
b. Why do it now? High production costs, complaints
c. What business objectives are supported by project? Min.
costs, reduce complaints
d. Consequences of not doing: lower profits, more employee
complaints
e. What projects have higher priority? None.
4. What is the problem statement?
 Low-quality MSDs create additional production costs and
employee frustration
5. What is goal or desired state?
 100-fold increase in durability 0.6% from 60%
 10-fold every 2 years, so 100 over 4 year project
 100-fold would take from 600,000 DPMO to 6,000 DPMO,
set goal as 4 sigma (p. 739)
More charter questions
6. What is scope?
a. Boundaries? When purchasing receives purchase orders,
ends when MSD put in inventory
b. What is out of bounds? How employees use MSDs
c. What resources? $30,000, including salaries
d. Who can approve expenditures? Process owner
e. Can they go over $30,000? No.
f. What are obstacles? Budget, 21 weeks
g. What time commitment expected? Friday 8-9am
meetings, progress reports
h. What about regular duties? OT may be required, not in
budget
Gantt Chart for Project
Steps Resp. Week

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Define BA X X X X X X

Mesure BA X X

Analyze BA X X X

Improve BA X X X X X X

Control BA X X X X
MSD Project Benefits

7. Benefits:
a. Soft benefits: eliminating complaints from PSD
and increasing employee morale
b. Hard benefits (financial): minimizing labor costs
Labor savings – Clipping
expenses
 100 employees, 40 hrs/wk, spend 10% of time
clipping = 400 hrs / wk clipping
 $25 / hr * 400 hrs * 50 wks = $500,000 annual
clipping expenses
 60% clips defective = $300,000? Currently?
 0.62% defective = $3,100? Improved system?
 Annually, 20,000 hrs clipping = 10 employees
 60% = 12,000 wasted clipping hours currently
 0.62% = 124 wasted hours under improved system
 Need 6 fewer employees
 This does not including time lost from clips failing
later, on work in process
Material Cost Savings

 300,000 projects per year, 10 clips each

=3,000,000 clips needed each year.
 0.60 defect means 1/(1-0.6) = 2.5 clips used
for each one needed = 7,500,000 used
 0.0062 means 1/(1-0.0062) = 1.00625
=3,018,000 clips used
 Savings of 4,482,000 clips = $44,820 per
year
Team Members

 Champion
 Process Owner
 Team Leader – Black Belt
 Team member 1
 Team member 2
 Finance representative
 IT representative
 Start

SIPOC Purchasing
receives order from
Paper Shuffling
Department

-Suppliers Purchasing agent

-Inputs calls vendor
No
-Process
Does vendor
-Outputs have MSD
-Customers in stock?

Yes
Place order with
vendor

Receive order from

vendor

Store product
received into
inventory (new
boxes go on bottom
back of shelf)

PSD removes
products from
inventory

PSD uses Product

Stop
Voice of the Customer
 What emotions come to mind when you think about MSDs?
 What needs and wants come to mind when you think about MSDs?
 What complaints or problems would you like to mention about
MSDs?
 3 themes:
 Variation in durability

 Variation in color

 Variation in functionality (# broken MSDs in each box)

 CTQ-Critical to Quality factors Tech Specs

 Ability to withstand bending >= 4 bends w/o breaking
 The number of different MSD colors = 1 color of MSDs
 The number of broken MSDs in a box. <= 5 broken in box
Project Objectives
 1. Decrease (direction) the percentage that cannot
withstand four or more bends without breaking
(measure) bought by the purchasing department
(process) to 0.62 percent (goal) by Jan. 1, 2005
(deadline). Go for 4 sigma!
 2. Decrease (direction) the percentage of boxes of
MSDs with more than five broken clips (measure)
bought by the purchasing deparment (process) to
0.62 percent (goal) by Jan. 1, 2005 (deadline) Go
for 4 sigma!
 3. What happened to colors?
Measure phase-I Operationally
Define CTQs
 Operational definition for CTQ1: Durability
 Take top-front box
 Close eyes, randomly pull one out
 Count number of bends until breaking
 Do not count bend being made when it breaks
 If >= bends, then MSD conforms, else defective
Operationally Define CTQ2 -
Functionality
 Take top-front box
 Count the number of broken clips
 If number of broken is <= 5, box is
conforming
 If number is > 5, box is defective
 Use same boxes for both operational
definitions
Measure Phase-II Gage
repeatability and reproducibility
 10 top-front boxes tested by 2 inspectors,
each box twice
 Gage (or gauge) run chart shows no
difference between the measurements from
the two different inspectors
Box Inspector Count Functionality Box Inspector Count Functionality
1 1 1 10 6 1 1 9
1 1 2 10 6 1 2 9
1 2 1 10 6 2 1 9
1 2 2 10 6 2 2 9
2 1 1 9 7 1 1 6
2 1 2 9 7 1 2 6
2 2 1 9 7 2 1 6
2 2 2 9 7 2 2 6
3 1 1 5 8 1 1 6
3 1 2 5 8 1 2 6
3 2 1 5 8 2 1 6
3 2 2 5 8 2 2 6
4 1 1 4 9 1 1 9
4 1 2 4 9 1 2 9
4 2 1 4 9 2 1 9
4 2 2 4 9 2 2 9
5 1 1 5 10 1 1 11
5 1 2 5 10 1 2 11
5 2 1 5 10 2 1 11
5 2 2 5 10 2 2 11
 Gage name:
Date of study:
Runchart of Fuctionality by Box, Inspector Reported by:
Tolerance:
Misc:

11 1
10 2
9
Fuctionality

8
7
6
5
4
Box 1 2 3 4 5

11
10
9
Fuctionality

8
7
6
5
4
Box 6 7 8 9 10
CTQ Baselines Hour
Dura-
bility
Function
-ality
Shift 1-Hr1 5 12
 Hourly inspections for both Shift 1-Hr2 7 4
CTQs Shift 1-Hr3 3 8
 Durability is # bends for one Shift 1-Hr4 2 6
MSD before breaking Shift 1-Hr5 9 1
 Functionality is # of broken Shift 1-Hr6 2 5
clips Shift 1-Hr7 1 11
 Yield is percentage of Shift 1-Hr8 1 9

batches passing the Shift 2-Hr1 12 6

standard Shift 2-Hr2 9 6

Shift 2-Hr3 3 9
 6/16 passed each
Shift 2-Hr4 1 5
 Very similar to claim of 60% Shift 2-Hr5 1 4
unacceptable Shift 2-Hr6 1 5
Shift 2-Hr7 1 9
Shift 2-Hr8 4 10
Yield 0.375 0.375
 I and MR Chart for Durability

15
Individual Value

UCL=12.21
10

5
Mean=3.875
0

-5 LCL=-4.458

Subgroup 0 5 10 15

1
10 UCL=10.24
Moving Range

5
R=3.133

0 LCL=0

 I-MR charts show durability not stable over time.

 Different vendors, but deal with that soon
 Durability “dot plot” – shows how many boxes had a
particular durability level
 Graph doesn’t look like Normal distribution
 Maybe Poisson distribution
 C-chart not in control, shift 2 tester bent more
slowly, caused it to last longer
 C-chart for Functionality under control
 Dot-plot for Functionality

 Dot-plot for Functionality looks Normally

distributed
 Start

Detailed Purchasing
receives order from

Process Map
Paper Shuffling
Department

Purchasing agent
calls vendor
No

Does vendor
have MSD
in stock?

Yes
Place order with
vendor X1 – Vendor (Ibix or Office Optimum)
X2 – Size (Small or Large)
Receive order from X3 – Ridges (With or Without)
vendor X4 = Cycle time from order to receipt for MSDs
X5 = Discrepancy in count from order placed and
MSDs placed into order received
inventory (new boxes
go on the bottom
back of shelf) X6 = Cycle time to place product in inventory

 X’s also could be PSD removes

defined in box from

inventory
X7 = Inventory shelf time (in days)

measure phase PSD uses MSDs X8 = Type of usage (Large stack of paper or
Small stack of paper)

Stop
Operational Definitions for
each X
 X1 – Vendor Ibix Office Optimum
 X2 – Size Small Large
 X3 – Ridges With Without
 X8 – Usage Large stack Small stack
 X4 – Cycle time, ordering to receipt (days)

 X5 – Discrepancy: # ordered vs. received

 X6 – Cycle time to place in inventory (days)

 X7 – inventory shelf life (in days)

Perform gage study on each, to make sure we can

measure consistently (repeatability and reproducibility)
Baseline Data

 Every hour for 2 weeks – 80 samples

 Collect info about:
 X1 vendor
 X2 size
 X3 ridges
 Y1 Durability
 Y2 Functionality
 Other factors studied separately
Sample Day Hour X1 X2 X3 X7 Durability Function
1 Mon 1 1 0 0 7 2 5
2 Mon 2 0 1 0 7 2 9
3 Mon 3 0 0 1 7 10 7
4 Mon 4 0 1 0 7 1 4
5 Mon 5 0 0 0 7 7 3
6 Mon 6 0 1 1 7 2 5
7 Mon 7 0 1 1 7 1 9
8 Mon 8 0 0 0 7 7 5
9 Tue 1 0 1 0 8 2 8
10 Tue 2 0 1 0 8 1 7
11 Tue 3 0 1 0 8 1 13
12 Tue 4 1 1 1 8 9 5
13 Tue 5 1 1 0 8 9 9
14 Tue 6 1 1 1 8 10 11
15 Tue 7 1 1 1 8 10 11
16 Tue 8 0 0 1 8 8 9
17 Wed 1 1 1 1 9 8 11
18 Wed 2 1 0 0 9 1 11
19 Wed 3 1 1 1 9 10 11
20 Wed 4 0 0 0 9 7 11
21 Wed 5 1 1 1 9 9 9
22 Wed 6 0 0 1 9 9 5
23 Wed 7 1 0 1 9 2 11
24 Wed 8 1 0 0 9 1 10
25 Thu 1 1 0 1 10 1 14
26 Thu 2 0 1 1 10 1 10
27 Thu 3 1 1 1 10 8 13
28 Thu 4 0 0 1 10 10 12
29 Thu 5 0 0 0 10 7 14
30 Thu 6 0 1 1 10 3 13
Sample Day Hour X1 X2 X3 X7 Durability Function
31 Thu 7 0 0 0 10 9 13
32 Thu 8 1 1 1 10 8 11
33 Fri 1 0 1 0 1 2 0
34 Fri 2 0 1 0 1 2 1
35 Fri 3 0 1 0 1 1 6
36 Fri 4 0 1 0 1 3 3
37 Fri 5 0 1 0 1 2 2
38 Fri 6 1 1 0 1 10 6
39 Fri 7 0 0 1 1 10 0
40 Fri 8 0 1 0 1 2 0
41 Mon 1 0 1 1 4 3 4
42 Mon 2 0 1 0 4 3 7
43 Mon 3 0 1 1 4 3 3
44 Mon 4 0 0 0 4 10 2
45 Mon 5 1 1 0 4 8 5
46 Mon 6 0 1 1 4 3 4
47 Mon 7 1 0 0 4 1 4
48 Mon 8 0 0 1 4 10 5
49 Tue 1 1 1 1 5 11 6
50 Tue 2 1 0 1 5 3 4
51 Tue 3 1 1 0 5 10 6
52 Tue 4 1 0 1 5 3 5
53 Tue 5 1 0 0 5 2 4
54 Tue 6 0 0 0 5 9 5
55 Tue 7 0 0 1 5 9 5
56 Tue 8 0 1 0 5 3 7
57 Wed 1 0 0 1 6 9 5
58 Wed 2 1 1 0 6 9 7
59 Wed 3 0 0 0 6 9 5
60 Wed 4 1 0 0 6 2 6
Sample Day Hour X1 X2 X3 X7 Durability Function
61 Wed 5 1 0 1 6 2 5
62 Wed 6 1 1 1 6 10 5
63 Wed 7 0 1 0 6 1 7
64 Wed 8 0 1 0 6 2 5
65 Thu 1 0 0 1 7 10 7
66 Thu 2 1 1 0 7 9 5
67 Thu 3 1 0 0 7 1 7
68 Thu 4 0 1 0 7 2 5
69 Thu 5 1 0 1 7 1 6
70 Thu 6 0 1 0 7 1 5
71 Thu 7 1 0 0 7 1 8
72 Thu 8 1 1 1 7 10 5
73 Fri 1 0 1 1 8 3 7
74 Fri 2 1 1 1 8 9 7
75 Fri 3 1 0 0 8 1 13
76 Fri 4 0 1 1 8 2 8
77 Fri 5 0 1 1 8 3 9
78 Fri 6 1 1 1 8 8 10
79 Fri 7 1 0 1 8 3 11
80 Fri 8 0 0 1 8 10 11

Legend:
X1 = Vendor (0 = Office Optimum and 1 = Ibix)
X2 = Size (0 = Small and 1 = Large)
X3 = Ridges (0 = Without and 1 = With)
X7 = Inventory shelf time, in days
Baseline results

 Durability 0.4625
 Functionality 0.425
 X1: Office Optimum 56.25%
 X2: Small 42.50%
 X3: Without ridges 50%
 X7: Shelf life average 6.5 days
 X7: Shelf life st. dev 2.5 days
 Vendor (X1) and Durability

Maybe Ibix is more durable?

Ibix

Off Opt.
 Size (X2) and Durability
Maybe small is more durable?

Large

Small
 Ridges (X3) and Durability

Maybe ridges are more durable?

Ridges

No ridges
Shelf Life (X7) and Durability
 Vendor (X1) and
Functionality

Maybe Ibix is more functional?

Ibix

Off Opt.
 Size (X2) and Functionality
Maybe large is more functional?

Large

Small
 Ridges (X3) and
Functionality
Maybe ridges are more functional?

Ridges

No ridges
Shelf Life (X7) and
Functionality
Conclusions

 Durability – no large effects from any X’s.

 Vendor (X1=1 = Ibix) improves functionality
 Size (X2=1= large) improves functionality
 Ridges (X3=1) seem to improve functionality
 Shelf Life (X7) – lower values have better
functionality
 Best plan is to buy Ibix large MSDs with
ridges
Office Ibix small Lg No with Shelf
Opt. Ridges Ridges Life
Conculsions – 2

 Best to buy
 Ibix
 Small
 With Ridges
 Shelf life doesn’t matter?
X1=Off Opt

X1=Ibix

Small Large

No ridges Ridges
Conclusion?

 Ridges don’t seem to affect durability

 Buy small Office Optimum, or Large Ibix!
Functionality Main Effects

Age seems to be biggest factor, ridges, Vendor

Functionality Interaction Plot

X2=small

X2=large

No ridges Ridges
Improve Phase

 Conduct experiment to determine ideal

parameter values