Adnan Alibegovic

1
Chapter 16

• Adnan Alibegovic
• Jenny Hon
• Vivian Ngo
• Tom Spaulding

2
Precision Systems, Inc.

• Manufactures and sells high-tech instruments for
  more than 25 years
• Has a few standard products, but changes are
  common gt Make to order
• Implemented TQM for Manufacturing in 1989,
  included Order Entry in 1992.
• TQM - The unyielding and continuous effort by
  everyone in the firm to understand, meet, and
  exceed the expectations of customers
• First step Cost of quality study
• System for identifying order entry errors
• Determine costs of order entry errors

3
Order Entry Dept.

• Prepares quotes for potential customers
  (forwarded by sales reps)
• Takes sales orders (forwarded by sales or service
  reps or direct)
• Two supervisors
• Nine employees 3-parts orders, 3-system order
  quotes, 3-taking system orders
• Final output
• The price quotes
• The order acknowledgement, green sheet

4
Order Entry Dept.

• Order Entry Dept.s major suppliers
• Sales or service representatives
• The final customers
• Technical information and marketing department
• Internal customers which use OE info
• Direct Users Manufacturing, service (repair),
  stockroom, invoicing, and sales administration
• Indirect users Shipping, customer/tech support,
  and collection department

5
Precision Systems, Inc.

• No direct communication between sales and
  manufacturingOE in middle
• Differing info can cause multiple reworking of
  quotes
• Manufacturing produces standard systems in
  anticipation of quotes becoming orders
• Duplicate orders results if customers fail to use
  quote numbers on actual orders
• Good order acknowledgement reduces downstream
  errors and associated costs

6
Q1 Role that assigning costs to order entry
errors played in quality improvement efforts

• Types of errors were helpful information to make
  changes to process and accelerated the
  improvement effort
• Determined the communication gaps between the
  order entry staff, sales reps, and manufacturing
• Adoption of ISO 9002

7
Q2 Flow of activities between the order entry
dept. and its suppliers, internal customers
(within PSI), and external customers (outside PSI)
Order Entry Dept.
Manufacturing
Invoicing Dept.
Sales rep
Get order from customers
Receive order from sales rep
Produce standard config. system
Receive order acknowledgement
Fill out order and fax/phone to order entry dept
Receive order
Reconfirm order
Send invoice to customer
Send order acknowledgement
Prepare quote assign quotation and inform
sales rep
Acknowledge quoted price
Customize order as needed
Send order to mfg
Receive order acknowledgement
Customer
8
Q3 Classify the failure items into internal
failures and external failures

• Internal failures (on purchase order)
• Incomplete information
• Transposition of prices
• Freight terms missing
• Credit approval missing
• Customer number terminated on the computers DB
• Part number mismatch

• External failures (on order acknowledgement)
• Incorrect business code (used for tracking
  product line profitability) Sales Admin
• Incorrect shipping or billing address Shipping,
  Collection
• Incorrect sales tax calculation Invoicing,
  Collection
• More than one part number when only one is
  required Manufacturing
• Incorrect part number Manufacturing
• Missing part number Manufacturing

9
Q4 Internal/External failures

• How to identify internal/external failures?
• Inspecting the documents
• Who would be involved in documenting these
  failures?
• Sales representative
• Order entry staff and supervisor
• Manufacturing staff
• Which individuals or dept. should be involved in
  making improvements to the order entry process?
• Order entry manager, sales rep manager,
  manufacturing manager

10
Precision Systems, Inc.

• Quality costs arise from poor quality
• Poor quality in OE is insufficient or incorrect
  information on order or quote
• Costs of poor quality
• Class I Rework of quotes, orders prior to
  leaving OE dept
• Class II Costs of incorrect order
  acknowledgements transferred out of OE

11
Precision Systems, Inc.
Estimated Annual Failure Costs (as a percentage
of order entrys annual salary and fringe
benefits budget)
12
Precision Systems, Inc.

• Over 20 types of order acknowledgement errors
• Many change order errors not controllable by OE
  (71 per 100 new orders)
• Invoice errors cause delays in payment
• RAs caused by sales and service errors
• Total cost of quality amounts to over 15 of OEs
  annual budget
• Internal customers rarely provided feedback
  concerning problems caused by poor OE quality

13
Q5 What costs, in addition to salary and fringe
benefits, would you included in computing the
cost of correcting errors?

• Space costs (rent, utilities, etc.)
• Telephone and computer expenses
• Manufacturing rework direct materials (for class
  II order acknowledgement errors)
• Office supplies
• Cost of capital for delayed payments
• Shipping for RA orders

14
Q6 Provide examples of incremental and
breakthrough improvements that could be made in
the order entry process, esp. prevention, and
prioritize.

• QC on order acknowledgements, both human and
  electronic
• Require sales-manufacturing communication prior
  to submission of quotes/orders
• Establish process for tracking and reviewing
  errorsrequire internal customers to report and
  analyze impact

15
Q7 What non-financial quality indicators might
be useful for the order entry department? How
frequently should data be collected/reported?
Usefulness of COQ info vs. non-financial?

• Types of errors and success percentages (monthly)
• Change orders and RAs as percentage of new
  orders
• Satisfaction report of internal customers incl.
  suggestions for improvement (quarterly)
• This info is more important than cost info since
  it is what drives quality costs

16
QA
17
Reading 16-6 16-10GE Takes Six Sigma Beyond
the Bottom Line

• Adnan Alibegovic
• Jenny Hon
• Vivian Ngo
• Tom Spaulding

18
GE Background

• 1981 25 billion bureaucracy
• 20 years later 100 billion well run company
• 1989 Work-out initiatives
• Improving back-office processing with new
  financial systems
• Improving internal paperwork control
• Streamlining approval process

19
GE Background

• Mid 90s Six Sigma initiative
• Welch puts it as a priority for the company
• Proclaims it is largest initiative ever at GE
• Sets goals and targets for 5 years
• Considered a core competency
• Increased annual productivity Gains by 266
• Operating margins from 14.4 to 18.4
• Started passing it on to the customers

20
Six Sigma

• Derived form a statistical approach
• Measures product or process defect rates
• Means almost error free performance
• Six sigma 3.4 defects per million opportunities
• Four sigma 6210 defects per million opportunities
• Three sigma 66807 defects per million
  opportunities

21
Six Sigma-DMAIC
Control
Improve
Sustain Improvements
Analyze
Mobilize change initiatives
Measure
Statistically find root causes
Define
Measure what you care about
Define the problem
22
Six Sigma GE

• 10 classroom days over 4 sessions and 90 calendar
  days
• Works through action teams
• Green Belts
• All employees
• Required training and 2 projects
• One project and post-certification each year to
  maintain

23
Six Sigma GE

• Black Belts
• Technical in nature
• Lead small teams in business related projects
• Coach green belts
• Over 4,500 today
• Master Black Belts
• Teach, Mentor, Develop Six Sigma tools
• Over 800 teach the methodology

24
Six Sigma GE

• Champions
• Drive the promotion of methodology
• Work with executives
• Develop measurement

25
Six Sigma GE

• Payback
• One division reduced annual teleconferencing cost
  by 1.5 mil encompassing 19 mil minutes
• Another cut customer processing time in half
• Each project is expected to save 50,000 and
  150,000
• Popcorn effect
• Overall 2 billion in 2000 in savings

26
Six Sigma and Customers

• GE Medical Systems
• Healthcare industry
• Lower reimbursement
• Competition
• Consolidation
• 1980s quality
• Today Quality and efficiency

27
Six Sigma and Customers

• Attempt to remedy
• Quality and reengineer consultants
• Cut costs
• Six Sigma as solution
• 2000 1,149 projects for customers
• Commonwealth Health Corporation
• Error reduction in order process reduced by 90
• Operating expense reduced by 800,000
• Overall 1.5 million savings

28
Six Sigma and Customers

• Process
• Customers determine scope
• They get onsite training and tools
• Verify benefits received
• Complete loop process
• Variations
• DFSS-Design for Six Sigma
• Customer requirement and market plans scrutinized
• Everyone involved acquires immediate
  understanding and provides feedback
• Apply to other areas immediately without delay
  with project tracking

29
QA