IENG 451 / 452 Improvement Selection: Management Alignment, Economics IENG 451 - Lecture 11 Improvement Selection: Management Alignment, Economics 4/29/2018 IENG 451 Operational Strategies (c) 2016 D.H. Jensen

IENG 451 Operational Strategies 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” 4/29/2018 IENG 451 Operational Strategies

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.” 4/29/2018 IENG 451 Operational Strategies

IENG 451 Operational Strategies 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 4/29/2018 IENG 451 Operational Strategies

IENG 451 Operational Strategies Types of Benchmarking Pros Cons Internal Establishes a baseline Identifies differences within the company Provides easy-to-adapt, rapidly accepted improvements Opportunities are limited to current company practices Direct Competitors Prioritizes areas of improvement according to competition Initial area of interest to most firms Best used as in-depth supplements for competitive intelligence studies Often limited pool of (willing) participants Opportunities are limited to know competitive practices Potential ethical / legal issues Industry Provides industrial trends Provides a conventional basis for quantitative and process-based comparisons Opportunities may be limited by industry paradigms Best-In-Class Examines multiple industries Best opportunity to identify radical innovation Provides new perspectives Free exchange of ideas is more likely to occur Identifying best-in-class is difficult Getting participation from best-in-class companies can be difficult 4/29/2018 IENG 451 Operational Strategies

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 4/29/2018 IENG 451 Operational Strategies

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 4/29/2018 IENG 451 Operational Strategies

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 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 4/29/2018 IENG 451 Operational Strategies

IENG 451 Operational Strategies Questions & Issues 4/29/2018 IENG 451 Operational Strategies (c) 2016 D.H. Jensen