IENG 451 - Lecture 11

1. IENG 451 - Lecture 11 Improvement Selection: Management Alignment, Economics IENG 451 Operational Strategies

2. Improvement • Improvement is the fourth phase of the DMAIC cycle. It requires the most creativity, and is the least structured (as in step-by-step) process. Never-the-less, it also should be approached in a methodical manner. • Many people believe that creativity is associated with genius. It is not a “lightning bolt from the blue” event. • As Thomas Edison observed: • “Genius is one percent inspiration and ninety-nine percent perspiration. Accordingly, a ‘genius’ is often merely a talented person who has done all of his or her homework.” • “Discontent is the first necessity of progress” IENG 451 Operational Strategies

3. Sources of Improvement Ideas • Begin with a true assignable cause. Use the ‘Five Whys” and other methods to drill down to a good CTQ statement. • Solutions should directly address at least one CTQ. Some sources of improvement ideas are: • Ideas garnered through the activities of the Measure and Analyze phases • Interviews • Focus Groups • Brainstorming • Benchmarking activities within the company, competition and industry • Reusing and adapting other projects that faced similar or related challenges • As Thomas Edison further observed: • “Opportunity is missed by most people because it is dressed in overalls and looks like work.” IENG 451 Operational Strategies

4. Benchmarking • Few problems are every really encountered for the first time. It is useful to look at the solutions / processes employed by others in order to see the potential for improvement in our own. • Bench marks are measures that have already been achieved somewhere else • … since they have already been implemented, this removes the ‘impossibility’ argument • … and the ‘not invented here’ argument is addressed by ‘adapting it for here’ • Sources for benchmarking data: • Interviews with experts • Trade / professional organizations (conferences, seminars, plant tours, …) • Published research / trade articles • Prior experiences of current staff • Suppliers / customer consultations IENG 451 Operational Strategies

5. Types of Benchmarking IENG 451 Operational Strategies

6. Alignment With Management • Management will look to support projects that align well with their current directions. • Know what strategic efforts are underway at the firm • Review key speeches and interviews by senior management • Review key publications • Review expected performance metrics with supervisors and project sponsors IENG 451 Operational Strategies

7. Alignment With Management • Management will always look for projects that align well with their financial objectives. • Financial Alignment: • Review with company financial officer(s) to identify • MARR standards • ROI standards • Payback period standards • Depreciation standards • Tax Implications IENG 451 Operational Strategies

8. Alignment With Management • Review and utilize engineering economic models for justification • Identify the common cash flows: • First Costs • Recurring (annual) Cash Flows • Salvage Values and One-time Flows • Net Present Worth analysis – taking all cash flows to time zero • Take all Salvage Value and One-time Flows to time zero using (P/F factors) • Take all Annualized Flows to time zero using (P/A factors) • Combine with First Cost • Equivalent Annual Worth analysis – converting all cash flows to annual equivalents • Take all Salvage Value and One-time Flows to time zero using (P/F factors) • Combine with First Costs and convert to Annualized Flows using (A/P factor) • Combine all Annualized Flows • Review and utilize engineering economic models for selection • NPW requires equivalent lifecycles – Least Common Multiple between projects • EAW compares projects directly – but does not consider the timing of cash flows • Incremental Analysis can help to optimize CDAM solution options IENG 451 Operational Strategies

9. Questions & Issues IENG 451 Operational Strategies