Whether you are producing cooking oil, baby oil or motor oil, one matter is constant, if you are trying to implement a quality system; you are competing with other projects for finite corporate resources. One of the most effective ways to compete for those resources and demonstrate project success is to be able to quantitatively demonstrate Return On Investment (ROI). Louis Halvorsen, CTO, Northwest Analytics, explains how to develop the ROI of quality systems and provide example case studies. He presents: • How to choose the project justifications that best meet your commercial requirements and to improve your bottom line. • What are common ROI targets and how may they be adapted to your plant requirements. • How to quantify ROI. Quality systems and operations typically deliver substantial cost benefits and rapid returns. Properly done, ROI modeling will not only enable you to obtain the necessary resources to develop your projects, but will also provide an ongoing basis to justify the quality management operations. Mr. Halvorsen presents three case studies which illustrate how to set up data collection and analysis to successfully demonstrate ROI and provide for continuing reporting. • An assembly process where management must determine which defects are most amenable to process improvement and will provide the greatest return for the effort. • A food processor facing product giveaway by overfilling. How can the processor improve the filling performance and calculate the ROI of the effort? • A high-speed process that makes multiple products has historically required long startup and change-over times to become stable enough for normal production. How can the producer reduce startup time and waste? Applying SPC to your production process is one of the quickest ways to realize a return from your quality system. SPC-based process improvements reduce variation and make further improvements possible. View recording at https://www1.gotomeeting.com/register/794616632

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

12. Defects Identified, Counts Recorded

13. Pareto Ranks Defects by Count

14. Cost Weighted Pareto

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

20. Package Fill Weight

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

33. www.nwasoft.com