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

2. 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

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.”
4/29/2018
IENG 451 Operational Strategies

4. 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

5. 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

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
4/29/2018
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
4/29/2018
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
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

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