Mod 2 ProgMgmt COPQ Sep 03

Program Management
Black Belt Training Module #2
Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.
Project Management Theory Project Value Rolled Throughput Yield Cost of Poor Quality
Instructor: Brian Edelman
Philosophy
Stop me immediately when a concept is unclearodds are, if you are confused about something, at least one other person in the room is also. I will either:
Try to rephrase/clarify the point Ask you to hold on for a few moments until we get to a downstream slide Defer it to 1:1 discussion.
Dual purposes of the material:

Knowledge to do projects. Knowledge to pass certification exam.
Zip the Monkey.

Project Management Theory

Purpose Deliverables
Problem Statement
Objectives Cost/Benefit Analysis Team Makeup Process Owner/Process Sponsor
Project Closure
Project Management Theory Agenda (cont.)

Tools
Timing
Critical Path Method PERT Compression
Crashing Fast Tracking
PurposeWhy Project Management?

To establish the boundaries, or scope, of the project. To determine what the goals of the project are. To identify and obtain commitment for the resources necessary for project completion. To complete the project in the most efficient and timely manner possible.
Deliverables
Problem StatementA single paragraph that captures the pain the organization feels from the problem and what the Six Sigma project will do to improve it. ObjectiveThis lists the primary metric and the degree to which the project will improve the metric. As a baseline, improvement is typically targeted at 70% improvement from current status. After the completion of the Define phase, this is the contract for successful project completion.
Deliverables (continued)
BenefitsThis item is not the primary metric and goal of the project, but instead is a listing of the benefits that will accrue from achieving the goal.
Financial ImpactsWhat is the bottom line improvement to the organization? OthersMay include floor space, goodwill, TGW reductions, or other soft savings. Memo: Hard savings are generally things that will hit the bottom line. As a rule of thumb they can be entered into the Cost Savings System (CSS). Soft savings are those things that may enable savings later but do not immediately affect the bottom line.
TeamTo successfully complete the Define phase of a Six Sigma project requires that a preliminary team be identified. This team must include a representative from the local controllers office, as well as all key stakeholders in the process.
Process Sponsor/Process OwnerThe manager who will own the process once the project is complete. He/she is responsible for making sure Visteon sustains the gain from the Six Sigma project once the project team completes its work.
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Problem Statement
A well-crafted problem statement is key to successful project completion. It must align with the project objectives and metrics. Example:
Problem Statement: Defects on Line 1 have averaged 121,000 ppm for the last four months. This does not allow us to meet our corporate cost and quality objectives Objective: Reduce ppm on Line 1 from an average of 121,000 ppm to 50,000 ppm by July 1, 2002.
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Problem Statement (cont).

Example (cont):
MetricDefects in ppm as measured on Line 1. Projected Benefits:
Quality: Our customers will see fewer defects slip through our quality control process. Cost:
Material: Assuming $1.26/defect to correct or scrap and volume of 1,000,000 units per year, we will save (121,000 50,000) * 1.26 = $89,460 annually. Overtime: Reducing defects allows us to avoid 10 hours per week of overtime to meet production requirements. This equates to $60/hr * 10 hrs/wk * 48 wks/year = $28,800.
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Project Closure
The project can be closed when it is verified that the goals/objectives for the project have been achieved. The most recent closure procedures are available on the Six Sigma website. (Home page: http://hub.visteon.com/6sigma/) Project closure requires approval of the Black Belt, the Project Champion, the responsible Finance Analyst/Controller, and the divisional Deployment Director. Certification requires two successfully closed projects, demonstrated competency in a statistical proficiency examination, and recommendation of the divisional Deployment Director.
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Project Management Tools

Project Management generally refers to all aspects of the project: timing, cost, quality, resource availability, etc. For purposes of this section, we will focus on project time management.
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Project Scheduling
Once a project scope has been established, a schedule of work can be developed. Typically, a series of tasks is identified, along with the precedence relationships, constraints, and who is responsible This list of tasks needed to accomplish the project is sometimes called the Work Breakdown Structure (WBS).
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Project Scheduling (cont.)

A task is any activity with an identifiable beginning and end.
Ex: Purchase prototype tool Ex: Run DOE
Precedence relationships define how tasks relate to one another.

Ex: Cannot PSW a part until a drawing for it is released.
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Example WBS and Gantt Chart

w1 14-May Project Selection Form (from Project Champion) Define Develop Project Statement Identify Customer Identify CTQ's Develop Y/X Diagram Map the Process Develop Fishbone Diagram Develop Cause & Effect Matrix Perform or Review FMEA Confirm Project Scope & Goal Refine Problem Statement Measure Develop Data Collection Plan Perform Measurement System Analysis Operational Definitions Gage R&R Conduct Data Collection Perform Graphical Analysis Pareto Chart Run Chart Histogram Box Plot Scatter Plot Conduct Baseline Capability Analysis Cp /CPk Rolled Throughput Yield DPMO Sigma Level Determine Cost of Poor Quality Confirm Project Scope & Goal Analyze Confirm Data Type - Attribute or Variable Attribute Data Analysis 1 Proportion 2 Proportion Chi- Square Variable Data Analysis Analysis of Variation F-Test ANOVA Analysis of Means 1- Sample Test 2- Sample Test ANOVA for Means Correlation Regression Improve Brainstorm Alternatives Conduct Design Of Experiments Create "should be" Process Map Conduct FMEA Perform Cost / Benefit Analysis Conduct Pilot Validate Improvement Control Mistake Proofing Long Term Measurement System Analysis Plan Develop Statistical Process Control Chart Develop Preventative Maintenance Plan Develop Reaction Plan Updated Standard Operating Procedures Congratulate the team Month 1 w2 w3 21-May 28-May w4 4-Jun w1 11-Jun Month 2 w2 w3 18-Jun 25-Jun w4 2-Jul w1 9-Jul Month 3 w2 w3 16-Jul 23-Jul w4 30-Jul w1 6-Aug
Month 4 w2 w3 13-Aug 20-Aug
w4 27-Aug
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Precedence relationships are generally, but not always, finish-to-start relationships:
Finish-to-start: Cannot begin the next task until the preceding one is finished. Start-to-start: Cannot start the next task until the preceding one starts. Finish-to-finish: Cannot finish the next task until the preceding one finishes
Gantt Chart from MS Project
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Constraints can tie activities to specific dates.
Ex: Must do equipment installation during contractual shutdown. Ex: Must file legal documents on/by specific dates.
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Analysis Toolsthe most common general means of analyzing schedules include:
Critical Path Method Program Evaluation and Review Technique (PERT) Memo: As an aside, CPM uses node-based information (duration), where PERT uses information on the links. From a practical matter, this makes little difference, and for the rest of this presentation, we will use node-based information, similar to Microsoft Project conventions.
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Critical Path Method

In this technique, the task durations are assumed deterministic (ie: there is no variability in the task lengths). Earliest and latest start and finish dates are calculated based on task durations and precedence relationships. The difference between the early and late finish dates for each task is called the float or slack time.
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Critical Path Method (cont.)

Tasks with zero float are on a critical path. Float greater than zero is an indication of how much this task can slip from its earliest date before it also becomes critical path. Having multiple critical paths is very badany slippage of any activity on any of the critical paths will delay the project completion. Or, in other words, Murphy has more places to strike.
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Critical Path Method

This technique, by identifying the critical path(s), emphasizes which tasks will affect overall execution time of the project if they slip (or finish early). This technique also allows tracking of progress versus a baseline to determine if the overall project is on track.
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Critical Path Method Example

A recruiting event is planned at a university. To be successful, it is necessary to do the following:
Reserve the facility6 weeks Obtain brochures and other giveaways2 weeks Arrange personnel4 weeks Hold the event1 week Select candidates1 week Follow up with appropriate candidates1 week
Lets map out the network diagram.

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The network diagram:
Reserve facility (6 weeks) Start Get brochures, etc. (2 weeks) Arrange Personnel (4 weeks)
Hold event (1 week)
Select Candidates (1 week) Follow Up (1 week)

Done
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CPM Example (continued)

Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start Early Finish
Early start is the latest of the predecessor activities early finishes
Early finish is the early start plus the duration 26

Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 Early Finish
These items have no predecessors, so they can start immediately

27

Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start Early Finish
+ + +
0 0 0
= = =
6 2 4
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 Early Finish 6 2 4
The latest early finish date of a predecessor is the early start date of the successor
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 Early Finish 6 2 4
Repeat through the chart
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 Early Finish 6 2 4 7
+ +
7 8
= =
8 9
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 Late Finish Late Start Float
Earliest late start of the successor tasks
Late Start = Late Finish Duration

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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 9 Late Finish Late Start Float
The late finish is the latest time a task can finish without slipping the project.
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 Late Finish Late Start Float
9-1=8
9 8
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 8 9 8 Late Finish Late Start Float
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 8 9 7 8 Late Finish Late Start Float
8-1=7
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 Late Finish 6 6 6 7 8 9 Late Start 0 4 2 6 7 8 Float
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 Early Finish 6 2 4 Late Finish 6 6 6 Late Start 0 4 2 Float
Float (or Slack) = Late Finish 6 7 Early Finish 7 6 = Late Start Early Start
7 8 8 9 8 9 7 8
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Task Reserve Facility Obtain Brochures Arrange Personnel Hold Event Select Candidates Follow Up Duration 6 2 4 1 1 1 Early Start 0 0 0 6 7 8 Early Finish 6 2 4 7 8 9 Late Finish 6 6 6 7 8 9 Late Start 0 4 2 6 7 8 Float 0 4 2 0 0 0
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Task Reserve Facility Obtain Brochures Duration 6 Early Start 0 Early Finish 6 2 4 7 Late Finish 6 6 6 7 Late Start 0 4 2 6 Float
0
4 2
2 0 Tasks with zero float 4 are on the Arrange 0 Personnel critical path. If they Hold Event slip, the 1 project 6 completion slips.
Select Candidates
Follow Up
1
1
7
8
8
9
8
9
7
8
0 0 0
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Reserve facility (6 weeks) Start Get brochures, etc. (2 weeks) Hold event (1 week) Select Candidates (1 week) Follow Up (1 week) Done
Arrange Personnel (4 weeks)
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Program Evaluation and Review Technique (PERT)

PERT was developed in 1958 by the US Navy to meet the requirements of project planning in conditions of substantial uncertainty. PERT uses as assumed probability distribution for task completion times. PERT itself is seldom used today, but some of its estimates are used in CPM calculations. By incorporating variation into the CPM model, a probability of on time completion can be calculated.
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PERT (continued)
PERT assumes a probability distribution for possible durations. As a practical matter, PERT uses optimistic, pessimistic, and most-likely durations as inputs to the calculation.
Best way to get these estimates is simply to talk with people who have completed similar projects.
PERT-type algorithms then use a weighted average duration. (optimistic 4 * most _ likely pessimistic) duration 6
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Examples
Assume were in charge of building the new Visteon headquarters.
We have a series of high-level tasks and weve identified their precedence relationships. We have also determined what a best-case, realistic, and worst-case duration for each step is.
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Examples (cont.)
Task ID Description Predecessors Best-case duration 0.2 years 1 year 0.1 years 0.3 years 0.1 years 0.7 years 0.3 years Likely Duration 0.75 years 1.5 years 0.1 years 0.4 years 0.3 years 0.9years 0.4 years Worst-case Duration 2 years 2.5 years 0.3 years 0.5 years 0.4 years 1.0 years 1.0 years Weighted Average Duration Std. Dev (Worst Best) / 6
A B C D E F G
Select Site Design building Obtain permits Contract builders Arrange financing Build headquarters Pay contractors
none A B B B C, D, E F
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Examples (cont.)
Task ID Description Predecessors Best-case duration 0.2 years 1 year 0.1 years 0.3 years 0.1 years 0.7 years 0.3 years Likely Duration 0.75 years 1.5 years 0.1 years 0.4 years 0.3 years 0.9years 0.4 years Worst-case Duration 2 years 2.5 years 0.3 years 0.5 years 0.4 years 1.0 years 1.0 years Weighted Average Duration Std. Dev (Worst Best) / 6
A B C D E F G
Select Site Design building Obtain permits Contract builders
none A B B B
0.87 yr.
Arrange financing
0.2 4*0.75 2 6
C, D, E F
0.87
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Build headquarters Pay contractors
Examples (cont.)
Task ID Description Predecessors Best-case duration 0.2 years 1 year 0.1 years Likely Duration 0.75 years 1.5 years 0.1 years Worst-case Duration 2 years 2.5 years 0.3 years 0.5 years 0.4 years 1.0 years 1.0 years Weighted Average Duration Std. Dev (Worst Best) / 6
A B C D E F G
0.87 yr. 1.58 yr. 0.13 yr. 0.4 yr. 0.28 yr. 0.88 yr. 0.48 yr.
Completing 0.3 years 0.4 years the column.

0.1 years 0.7 years 0.3 years 0.3 years 0.9years 0.4 years
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Exercise
Task ID Description Predecessors Best-case duration 0.2 years 1 year 0.1 years 0.3 years 0.1 years 0.7 years 0.3 years Likely Duration 0.75 years 1.5 years 0.1 years 0.4 years 0.3 years 0.9years 0.4 years Worst-case Duration 2 years 2.5 years 0.3 years 0.5 years 0.4 years 1.0 years 1.0 years Weighted Average Duration 0.87 yr. 1.58 yr. 0.13 yr. 0.4 yr. 0.28 yr. 0.88 yr. 0.48 yr. Std. Dev (Worst Best) / 6
A B C D E F G
Exercise: Draw the network diagram and find the critical path.
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ExerciseNetwork Diagram
Obtain Permits
Select Site
Design Building
Contract Builders
Build HQ
Pay Contractors
Arrange Financing
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ExercisesCritical Path
Task ID Description Predecessors Weighted Average Duration 0.87 yr. 1.58 yr. 0.13 yr. Early Start Early Finish 0.87 2.45 2.58 Late Finish Late Start Float
A B C
none A B
0 0.87 2.45
.87 2.45 2.85
0 0.87 2.72
0 0 0.27
D E F G
B B C, D, E F
0.4 yr. 0.28 yr. 0.88 yr. 0.48 yr.
2.45 2.45 2.85 3.73
2.85 2.73 3.73 4.21
2.85 2.85 3.73 4.21
2.45 2.57 2.85 3.73
0 0.12 0 0
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ExercisesCritical Path
Task ID Description Predecessors Weighted Average Duration 0.87 yr. 1.58 yr. 0.13 yr. Early Start Early Finish 0.87 2.45 2.58 Late Finish Late Start Float
A B C
none A B
0 0.87 2.45
.87 2.45 2.85
0 0.87 2.72
0 0 0.27
D E F G
B B C, D, E F
0.4 yr. 0.28 yr. 0.88 yr. 0.48 yr.
2.45 2.45 2.85 3.73
2.85 2.73 3.73 4.21
2.85 2.85 3.73 4.21
2.45 2.57 2.85 3.73
0 0.12 0 0
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ExerciseCritical Path
Obtain Permits
Select Site
Design Building
Contract Builders
Build HQ
Pay Contractors
Arrange Financing
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Examples (cont.)
From the exercise, the overall duration is the sum of the expected durations on the critical path.
Overall duration = 0.87 + 1.58 + 0.4 + 0.88 + 0.48 = 4.21 years.
To determine the variability in the critical path estimate, we assume that the durations of each task are statistically independent of the durations of the others.
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Examples (cont.)
Because variances (2) of independent random events are additive,
2 overallproject
2 task all criticalpath tasks
Variance is the square of the standard deviation, which, for each event, is calculated as:
Pessimistic _ duration optimistic _ duration 6

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Examples (cont.)
Task ID Description Predecessors Best-case duration 0.2 years 1 year 0.1 years 0.3 years 0.1 years 0.7 years 0.3 years
Filling in Likely Duration the column

0.75 years 1.5 years 0.1 years 0.4 years 0.3 years 0.9years 0.4 years
Worst-case Duration 2 years 2.5 years 0.3 years 0.5 years 0.4 years 1.0 years 1.0 years
Weighted Average Duration 0.87 yr. 1.58 yr. 0.13 yr. 0.4 yr. 0.28 yr. 0.88 yr. 0.48 yr.
Std. Dev (Worst Best) / 6 0.3 yr. 0.25 yr. 0.03 yr 0.03 yr. 0.05 yr. 0.05 yr. 0.12 yr.
A B C D E F G
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Examples (cont.)
Because variances (2) of independent random events are additive,
2 overallproject
2 task all criticalpath tasks

2 2
2 overallproject 2 overallproject
0.3 0.25 0.03 0.05 0.12

2
0.17
overallproject 0.41
Note: Be careful to add the variances, not the standard deviations.
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Examples (cont.)
With the expected value and standard deviation of the critical path, one can use basic statistics to determine the probability that a project will be completed within a certain length of time.
Well cover Continuous Distributions in Week Two. Well practice this application in Week Four.
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Compression
Compression involves finding ways to shorten the duration of a project without changing its scope.
Crashing: Compressing timing by looking at cost and schedule tradeoffs to determine how to reduce the most time for the least money. Fast tracking: Doing activities in parallel that are normally done sequentially. This reduces timing at a significant risk of rework.
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Crashing
By spending extra money to reduce timing on critical path items, overall project completion timing can be reduced. For purposes of the exam, it will be necessary to know the cost per unit time to crash each activity.
ID Predecessors Normal Time Crash Time Cost per Week to Crash
$8,000 $10,000 $1,000 $3,500 $25,000
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A B C D E
none A A B C and D
4 weeks 5 weeks 3 weeks 6 weeks 8 weeks
1 week 2 weeks 2 weeks 4 weeks 3 weeks
Crashing (cont.)
Questions asked typically include:
Project cost and duration without crashing. Project cost and duration at maximum crashing. Project cost and duration for minimum cost project.
For non-crash situations, the critical path analysis will give project duration, and the cost per unit time of the project can be used to determine its total cost.
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Exampleno crashing
Assume it costs $15,000 per week for a given project. Also, assume the information below. Find the non-crashed duration and cost.
ID Predecessors Normal Time
Crash Time
Cost per Week to Crash

$8,000 $10,000 $1,000 $3,500 $25,000
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A B C D E
none A A B C and D
ExampleNetwork Diagram
B A C
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Exampleno crashing
ID Normal Time
Early Start
0 4 4 9 15
Early Finish
4 9 7 15 23
Late Finish
4 9 15 15 23
Late Start
0 4 12 9 15
Float
A B C D E
0 0 8 0 0
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Exampleno crashing
Duration is 23 weeks without crashing. Cost is $15,000 per week x 23 weeks = $345,000
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Crashing
For a maximum crashing situation, it is necessary to determine which critical path task has the least crash cost per unit time.
This task is crashed to the maximum it can be until the critical path changes. If the critical path has not changed, the next least expensive crash cost on the critical path is chosen and the above step is repeated. If the critical path changes, the new critical paths are identified. The least expensive crash costs for each critical path are identified. These are reduced to the point the critical path changes. Note that if one task is on both critical paths, it is not counted twice when tallying crash costs.
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Crashing (cont.)
This continues until no further crashing is possible for items on the critical path(s). The result is the maximum crash condition.
66
ExampleMaximum crashing
Find the maximum crash duration and cost for the prior example.
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ID Normal Time
Early Start
0 4 4 9 15
Early Finish
4 9 7 15 23
Late Finish
4 9 15 15 23
Late Start
0 4 12 9 15
Float
A B C D E
0 0 8 0 0
Identify Critical Path

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ExampleMax Crash.
B A C
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Crash Time

$8,000 $10,000 $1,000 $3,500 $25,000
A B C D E
none A A B C and D
The least cost critical path item to crash is D

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Crash Time

$8,000 $10,000 $1,000 $3,500 $25,000
A B C D E
none A A B C and D
D can be crashed up to 2 weeks.

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ID Normal Early Early Late Late Time Start Finish Finish Start There is eight weeks of float on all of the non-critical path items, so we know the 4 weekspath0will not 4 4 shorted 0 critical change if we 5 weeks 4 4 task D by92 weeks. 9
3 weeks 6 weeks 8 weeks 4 9 15 7 15 23 15 15 23 12 9 15
Float
A B C D E
0 0 8 0 0
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ID Predecessors Time Crash Time
1 week 2 weeks 2 weeks 4 weeks 3 weeks $25,000
Task D is crashed. The critical path doesnt change. We find the next least expensive critical path item to crash. This is task A.

$8,000 $10,000 $1,000
A B C D E
none A A B C and D
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1 week 2 weeks 2 weeks 3 weeks

$8,000 $10,000 $1,000 $25,000
A B C D E
none A A C and D
4 weeks 5 weeks 3 weeks 8 weeks
to 3 weeks.4 weeks B A can be crashed4up weeks
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ExampleMax Crash.
B A C
A is on all the paths, so crashing it will not change the critical path.
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1 week 2 weeks 2 weeks 4 weeks 3 weeks $25,000 $10,000 $1,000
Task A is crashed 3 weeks.. We find the next least expensive critical path item to crash. This is task B.
A B C D E
none A A B C and D
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1 week 2 weeks 2 weeks 4 weeks 3 weeks $25,000 $10,000 $1,000
A B C D E
none A A B C and D
Task B can be crashed up to 3 weeks.
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ID Normal Time
Early Start
0 1 1 6 10
Early Finish
1 6 4 10 18
Late Finish
1 6 10 10 18
Late Start
0 1 7 6 10
Float
A B C D E
0 0 6 0 0
The only non-critical path task has 6 weeks of float, so crashing task B will not change the critical path.
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Task B is fully crashed. The next least ID Predecessors Time Crash expensive task on the critical path is Task E, which can be crashed up to 5 weeks. Time
A B C D E
none A A B C and D
1 week 2 weeks 2 weeks 4 weeks 3 weeks $25,000 $1,000
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ExampleMax Crash.
B A C
E is on all the paths, so crashing it will not change the critical path.
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Task E is crashed as much as possible. The ID only task Predecessors Time now is Crash that is able to be crashed Time task C, which is not on the critical path. We are at the maximum crash condition. A B C D E none A A B C and D 1 week 2 weeks 3 weeks 4 weeks 3 weeks 1 week 2 weeks 2 weeks 4 weeks 3 weeks $1,000
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ID Normal Time
Early Start
0 1 1 3 7
Early Finish
1 3 4 7 10
Late Finish
1 3 7 7 10
Late Start
0 1 4 3 7
Float
A B C D E
0 0 3 0 0
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Our project duration is now calculated at 10 weeks. Our project crash costs are:
Task
A B D E
Weeks Crashed Cost per time to Total Cost Crash

3 3 2 5 $8,000 $10,000 $3,500 $25,000 $24,000 $30,000 $7,000 $125,000
TOTAL:
$186,000
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The crashing costs were $186,000. This is added to our ongoing project costs. Ongoing project costs = 10 weeks duration x $15,000 per week = $150,000 Our total project cost was $336,000. Note that this amount may be more or less than the normal project duration costs.
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CrashingMinimum cost
To determine the minimum cost project, an iterative approach is used. The premise of this technique is that ongoing costs of the project ($x/month) are more than some of the costs to crash tasks ($y/month). By selectively identifying the tasks that reduce total cost, the project cost is optimized.
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Crashing (continued.)
Procedure for the least cost project:
1. Identify all of the critical paths. 2. Identify the tasks on the critical path(s) that have a lower crash cost than the ongoing cost of the project. 3. Choose the least crash cost task(s) that reduce all of the critical paths (and therefore the project). The total crash cost (per unit time) of these must be less than the ongoing project cost. If not, no further cost reductions are possible. 4. Crash them until they can no longer be crashed or until the critical path changes. 5. Repeat steps 2 through 5.
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ExampleMinimum cost
Using the prior example, find the minimum cost duration. How much does this cost?
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ExampleMinimum cost
Crash Time
Cost per Time to Crash

$8,000 $10,000 $1,000 $3,500 $25,000
A B C D E
none A A B C and D
The least cost critical path item to crash is D

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ExampleMinimum cost
ID Predecessors Normal Crash Time Time It can be crashed 2 weeks, and the critical path (based on the last none 4 weeks 1 week exercise) will not change.
A A B C and D 5 weeks 3 weeks 6 weeks 8 weeks 2 weeks 2 weeks 4 weeks 3 weeks

$8,000 $10,000 $1,000 $3,500 $25,000
A B C D E
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ExampleMinimum cost
Crash Time

$8,000 $10,000 $1,000 $3,500 $25,000
A B C D E
none A A B C and D
With an ongoing project cost of $15,000 per week, any crash in Task D (as long as Task D remains on the critical path) will reduce total cost.
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D is crashed as much as possible. Example Minimum cost
The next least expensive critical path item is TaskNormal A. ID Predecessors Crash Time Time
A B C D E none A A B C and D 4 weeks 5 weeks 3 weeks 4 weeks 8 weeks 1 week 2 weeks 2 weeks 4 weeks 3 weeks

$8,000 $10,000 $1,000 $25,000
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From the prior exercise, we know the critical path Example Minimum cost will not change if task A is crashed. As $8,000
ID
crash cost is less than the $15,000 ongoing costs, we crash task A as much as possible. Predecessors Normal Crash
Time
A B C D E none A A B C and D 4 weeks 5 weeks 3 weeks 4 weeks 8 weeks
Time

$8,000 $10,000 $1,000 $25,000
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ExampleMinimum cost
Crash Time

$10,000 $1,000 $25,000
A B C D E
none A A B C and D
Task B is the next least expensive critical path item. It can be crashed 3 weeks and (from the prior exercise) will not change the critical path.
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ExampleMinimum cost
Crash Time

$10,000 $1,000 $25,000
A B C D E
none A A B C and D
Task Bs crash costs are less than the ongoing project costs, so it is crashed as much as possible.
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The only remaining critical path item is task E, Example Minimum cost which has a crash cost higher than the ongoing cost of the project. Therefore, no further cost ID Predecessors Normal Crash reductions are possible on this project.
Time
Time
A B C D E
none A A B C and D
1 week 2 weeks 2 weeks 4 weeks 3 weeks $25,000 $1,000
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ExampleMinimum cost
ID Normal Time
Early Start
0 1 1 3 7
Early Finish
1 3 4 7 15
Late Finish
1 3 7 7 15
Late Start
0 1 4 3 7
Float
A B C D E
0 0 3 0 0
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ExampleMinimum cost
Our project duration is now calculated at 15 weeks. Our project crash costs are:
Task
A B D TOTAL:
Weeks Crashed Cost per time to Total Cost Crash

3 3 2 $8,000 $10,000 $3,500 $24,000 $30,000 $7,000 $61,000
97
ExampleMinimum cost
The crashing costs were $61,000. This is added to our ongoing project costs. Ongoing project costs = 15 weeks duration x $15,000 per week = $225,000 Our total project cost was $286,000 (versus $345,000 for the non-crashed project). Note that more complex examples will result in multiple critical paths.
98
Project Management
That concludes the section on Project Management. Any questions?
99
Project Value
Also known as Finance 101
100
Project Value
Evaluation of a project must take account of the time value of money. The premise behind time value of money is that $1 today is worth more than $1 tomorrow. Why?
Inflation. Lost investment opportunity.
101
Project Value (cont.)

To account for this, a discount factor is applied to money we will receive (or spend) in the future. This discount factor is usually called the rate of return and is analogous to the interest rate on a loan or deposit. Example: If the interest rate r is 6% per annum and we will receive $1000 in one year, then the value of this in todays dollars is: $1000 1000 Value today $939 .40 1 r 1.06
102
Project Value (cont.)

Terms
Rate of return is also called cost of capital.
An organizations established hurdle rate may also be used in the same calculations. The terms TARR (Time Adjusted Rate of Return) and IRR (Internal Rate of Return) are also used.
Value today is generally called the present value or net present value of the decision. Payback period (or simply payback) is the length of time it will take the company to recoup its investment.
103
Project ValueDecision Making

Typical Decision making critieria
1. If a projects TARR is greater than an established hurdle rate, the project is approved. 2. If the projects net present value is greater than zero, the project is approved. 3. If the projects payback is less than some period of time, the project is approved.
104
Project Value (cont)

Many projects result in a stream of savings, rather than just a one time save.
Example: Improving the process saves us $0.43 for each fuel tank produced. Example: Negotiating a lower price for our computer services saves us $500,000 per year.
Each years savings get discounted back into todays dollars to determine the value of the project.
Value today Year 1 Savings Year 2 Savings Year 3 Savings 2 3 1 r 1 r 1 r
105

Any cost to implement the project would also be included as a Year 0 expenditure.
Example: Spending $1,000,000 today to save $300,000 per year would have what Net Present Value (NPV), assuming a 10% return rate?
Graphically, this is:

500 300 300 300 300 300 300
$ (000s)
0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 -500 -1000 -1000 -1500
106

The NPV formula for an infinite stream of payments of amount A given an investment and a rate of return r is:
A NPV - Investment r
In our example, the net present value is:
300,000 NPV 1,000,000 2,000,000 0.10

107

For a finite stream of payments, the Excel function NPV() can be used. The syntax of this is NPV(rate, value, value, value) Example: If you invest $10,000 today and receive annual payments of $8,000 for three years, what is the net present value of this transaction, assuming a 6% cost of capital?
present value = -10000 + NPV(0.06, 8000,8000,8000) present value = $11,384.10
108

Given a stream of payments, it is also possible to calculate the internal rate of return. For a stream of n payments, one simply solves for the roots of an nth order polynomial. Or One uses the IRR() function in Excel to do it for you. The syntax for IRR is (value, value, , guess). Note that the guess is optional.
109

Example:
Assume investing $1,000,000 for a new machine lowers piece prices sufficiently that the company saves $250,000 per year. Also assume that the product has a 5 year life (and no salvage value for the machine). What is the internal rate of return for this investment?
internal rate of return = IRR(-1000000,250000,250000, 250000,250000,250000) internal rate of return = 0.079 or 7.9%
If this was greater than or equal to the organizations hurdle rate, this project would be considered a good investment.
110

The third Excel function that is useful is the payment function, PMT(). The PMT function takes as input the present value, the rate of return, and the number of payments. It outputs the periodic payment that results. Syntax: Payment PMT = (rate, nper, pv) where rate is the rate of return, nper is the number of periods, and pv is the present value.
111

Example: If we lent $500,000 at 10% and were repaid monthly for 5 years, what would the monthly payment be?
PMT = PMT(0.10/12, 5*12, -500000) PMT = $10,623.52 per month
Note that both the rate and the number of periods must be in the same time units (in this case, months) as the payment schedule.
112
Project Value
Any questions?
113
Rolled Throughput Yield
114
The Classical Perspective of Yield

Y = S U
Traditionally, the output of a process is compared to a pass/fail criteria to determine yield.
Where: Where: Y Y= =Yield Yield S S= =Number Numberof ofUnits Unitsthat thatPass Pass U U= =Number Numberof ofUnits UnitsTested Tested
1.01 0.99
Y.
Y.
0.97 0.95 1 4 7 10 13 16 19
Time Period Time Period
115
Six Sigma Breakthrough Challenge

Intuition would tell us that yield should be correlated to profit margin and scrap ratebut the data do not show this.
Data: Jan 92 through Dec 92
Data Courtesy of Asea Brown Boveri, Ltd. Each data point is a factory Y.FT = 1- Failure Rate
Profit Profit Margin Margin
Scrap Scrap Rate Rate
Test Room Failure Rate Test Room Failure Rate
.09 Data Courtesy of Asea Brown Boveri, Ltd. .09 Each data point is a factory .08 Y.FT = 1- Failure Rate .08 .07 .07 .06 .06 .05 .05 .04 .04 S .03 S .03 .02 .02 .01 .01 0 0 0 .025 .05 .075 .1 .125 .15 .175 .2 .225 -.03 -.03 0 .025 .05 .075 .1 .125 .15 .175 .2 .225 Failure Rate Failure Rate Rate Scrap Rate Scrap
Test Room Failure Rate Test Room Failure Rate
116
First Time Yield

First time yield (also called first pass yield or first time through) is another measurable. First time yield does not count rework.
Scrap 15 Units Hidden Factory Non-Value Added Activities Rework 20 Units
A
100 Units
20 Units
Finished Product 85 Units
Traditional yield would be 85/100 or 85%. First-time yield is only 65%
65 Units
First Time Yield is Process Yield Without Rework Rework is the Hidden Factory
117

The Dilemma
. . . Obviously, there is a correlation between process capability and first-time yield. However, if we hold the process capability at a constant level, say 3.2 sigma we observe that the first-time yield varies from about 92% to 100%. Why is this so? We also observe that this range decreases as the process capability increases.
Y First Time
Data Courtesy of Texas Instruments, DSEG
1.02 1.00 .98 .96 .94 .92 .90 .88 .86 .84 .82 .80 2.4
2.8
3.2
3.6
(Sigma)
4.0
4.4
Process Capability
118

Receive parts from Supplier
95.5% Yield
Following Receiving Inspection and Line Fall-out...
97% Yield
45,000 PPM wasted From Machining Operations
94.4% Yield
At Test Stands on first attempt 21,965 PPM wasted 46,652 PPM wasted
YRT = .955*.97*.94.4 = 87.4%
113,617 parts per million wasted opportunities

Rev. 1.1 1/99
Right First Time

119
Traditional Yield ViewExercise

100 units
Whats the Yield? _________%
85 units
Rev. 1.1 1/99
120
Simple First Time Yield = Traditional Yield

100 documents
100 Scrap 10 90 Scrap 3 87 Scrap 2
100/100=1
Whats the Yield?
90/100=.9
1 x .9 x .97 x .98
87/90=.97
85 %
85/87=.98 85 units
First Time Yield (YFT) Gives Credit Only for Product not scrapped the First Time
121

Product A is Produced in 3 Consecutive (Independent) Steps
Step 1
YFT = 80%
Step 2
YFT = 70%
Step 3
YFT = 90%
Rolled Throughput Yield = Product of the First Pass Yields
YRT = (.80)(.70)(.90) = .504 = 50.4% Rolled Throughput Yield is the probability that any given part will go through the process with zero defects (no rework)
122
Illustrating rolled throughput yield:

100 units 7 93 Scrap 10 83 93/100=.93 No Credit is Given for the First Pass Yield Loss that is Reworked Multiply the First Pass Yields of Each Individual Step 70/83=.84 70 5 Scrap 2 63/70=.9 63 (22 re-worked) 85 units
83/93=.89 10
Whats the Yield? .93 x .89 x .84 x .9
Scrap 3
63 %
123

The Hidden Factory and Rolled Yield
Classic Yield = N
Operation Verify
s N
Rolled Throughput Yield = P(Op1)*P(Op2). = e -dpu s

Product
Rework
Scrap
Rolled Throughput Yield can also be stated in terms of average defects per unit (dpu)
124

Process Centered
Op 1
Process Centered
Op 2
Output 98%
Without Inspection or Test
99%
99%
Y RT
OR = e
DPU
There are two operations (OPs) for a unit, and each OP has a 0.01 probability of a defect. Therefore: DPU = 2 OPs per unit x .01 defect per OP = .02 defects per unit e
-.02
= .98019 or 98%
125
Complexity
(Distribution Shifted 1.5 )
# of Parts (Steps)
1 7 10 20 40 60 80 100 150 200 300 400 500 600 700 800 900 1000 1200 3000 17000 38000 70000 150000
Process 4 Capability
3
93.32% 61.63 50.08 25.08 6.29 1.58 0.40 0.10 -----------------
5
99.9767% 99.839 99.768 99.536 99.074 98.614 98.156 97.70 96.61 95.45 93.26 91.11 89.02 86.97 84.97 83.02 81.11 79.24 75.88 50.15 0.02 ----
6
99.99966 99.9976 99.9966 99.9932 99.9864 99.9796 99.9728 99.966 99.949 99.932 99.898 99.864 99.830 99.796 99.762 99.729 99.695 99.661 99.593 98.985 94.384 87.880 78.820 60.000
99.379% 95.733 93.96 88.29 77.94 68.81 60.75 53.64 39.38 28.77 15.43 8.28 4.44 2.38 1.28 0.69 0.37 0.20 0.06 ------
Complexity
(part count or process steps)
Rolled Yield
4 capability in each of 100 steps produces a rolled throughput yield of .99379 to the 100th power = 0.5254 or 52.54%
126
Complexity
Is Complexity better?
NO!
The GOAL is to REDUCE the number of opportunities and concurrently INCREASE the capability of each opportunity that remains.
127
Formulas to Know
DPU (Defects per unit) = Defects / Unit TOP (Total Opportunities) = Units * opportunities
DPO (Defects per Opportunity) = Defects / TOP Probability the Opportunity is defective = DPO
Pr(ND) (Probability the Opportunity is Not defective) Pr(ND) = 1 - DPO
Rolled Yield ] (The likelihood that any give unit of product will contain 0 defects)
Y RT= Pr(ND) # of Opportunities Y RT = Pr(ND) * Pr(ND) * Pr(ND) *......Pr(ND)
Recommend using when you know the yield for each process element or opportunity
129
Calculating Transactional Yield

Assumption 1 unit = 1 invoice The invoice has one process step that is CTQ for the customer : 1) Total invoice price = customers PO price One opportunity for a defect exists for each invoice. There is one opportunity for a defect in the invoicing process
To evaluate actual invoicing performance:
Process Impacting CTQ

Ready for Pick Up
# of Units Produced
500
# of Defects
35
# of Successes
465
Opp for Process

1
Yield for Process

0.93
Y RT = .93
130
Calculating Transactional Yield

Assumptions: 1 Unit = 1 Invoice Invoicing to the customer has 3 process steps that are CTQs for the customer 1) Correct Quantity 2) Correct Price 3) Invoice Received in a Timely Manner 3 opportunities for a defect exist for each invoice. There is one opportunity for a defect in each process To evaluate actual invoicing performance: Process Impacting CTQ Correct Quantity Correct Price Invoice Received On Time Y RT = .93 x .7 x .85 = .55
# of Units Produced 500 500 500
# of Defects 35 150 75 260
# of Successes 465 350 425
Opp for Process 1 1 1
Yield for Process 0.93 0.7 0.85
131
Hidden Factory
Hidden Factory What is it? Unnecessary activitiesWe will cover more on this in the Lean Techniques Module. Rework loops.
Learning Exercise ABC Electric has demanded that the quality and timeliness of the invoices received into the Accounts Payable Department be at a 6 level. The CTQ elements for ABC Electric are an invoice where quantity and price match the PO that was submitted. Also, the invoice must be received by ABC Electric within 3 days of shipping for receiving purposes. On the following page are the steps that your invoicing department has put in place to reach the level of quality the customer is expecting.
132
Hidden Factory
No Operator 1 enters the quantity shipped into the data entry system confirmation Pay invoice Does invoice meet CTQ'S? Pay invoice and charge a $10 penalty / invoice No The confirmation is check by Operator 2 for accuracy Was the input accurate? Operator 2 inputs the price of the Product into the system Invoice Yes Customer inspects invoice to determine accuracy of the invoice and if it was received on time. Operator 3 mails invoice to the customer Operator 3 inspects invoice for accuracy Is price correct?
Yes
Yes
No
If no defects were in the system, which activities could be eliminated? How can defects on upstream steps affect downstream steps?
133
Hidden Factory
No Operator 1 enters the quantity shipped into the data entry system confirmation Pay invoice Does invoice meet CTQ'S? Pay invoice and charge a $10 penalty / invoice No The confirmation is check by Operator 2 for accuracy Was the input accurate? Operator 2 inputs the price of the Product into the system Invoice Yes Customer inspects invoice to determine accuracy of the invoice and if it was received on time. Operator 3 mails invoice to the customer Operator 3 inspects invoice for accuracy Is price correct?
Yes
Yes
No
If no defects were in the system, which activities could be eliminated? How can defects on upstream steps affect downstream steps?
134
Defects and the Hidden Factory

Described below is any process that meets a customer need
OK Inputs Operation Inspect NOT OK First Time Yield
90% Customer Quality
Rework
Hidden Factory
Scrap
Each defect must be detected, repaired and placed back in the process. This results in Wasted: Time Money Resources Floor Space
90% Yield After Inspection or Test

This classic approach to calculating yield does not account for the hidden factory.
Six Sigma is about identifying/quantifying and eliminating the Hidden Factory through Defect Reduction and ultimately Design for 6 Sigma
135
Rolled Throughput Yield Versus First Time Yield

OK
Inputs
Operation Rework
Hidden Factory
Inspect
First Time Yield
90% Customer Quality
NOT OK
Yield After Inspection or Test
Scrap
Process
A B
Final Test D
90% Yield
Rolled Yield
90% Yield
81 %
90% Yield
73 %
90% Yield
66 %
66% 90% ... why not?

Classical First-Time Yield
Rolled-Throughput Yield
Using final test (or first time) yield ignores the hidden factory. Final test performance is a function of inspection & test not actual defect data.
136
Six Sigma, Metrics and Continuous Improvement

Six Sigma is characterized by:
defining critical business metrics tracking them improving them using proactive process improvement
Six Sigmas primary metric is Defects per Unit, which is directly related to Rolled Throughput Yield (Yrt) Yrt = e-dpu Cost of Poor Quality and Cycle Time (Throughput) are two other key metrics
137
Cost of Poor Quality
138
Cost of (Poor) Quality

The hidden factory in any process is one key part of the cost of poor quality (COPQ).
Direct cost to rework product. Cost of scrap (including disposal costs). Foregone throughput/productivity.
Hidden factory costs are insidiousthey become part of the day-to-day business and go unnoticed. Tracking COPQ is not easy with traditional cost accounting systems.
139
What is Cost of Poor Quality?

everything that would not have to be done if everything were done right.
-- P. Crosby (1979)
those costs incurred because of poor quality that would not have been incurred if every aspect of a product or service were perfectly correct the first time and every time no deficiencies.
-- J. Juran (1989)
140

In addition to the direct costs associated with finding and fixing defects, Cost of Poor Quality also includes:
The hidden cost of failing to meet customer expectations the first time The hidden opportunity for increased efficiency The hidden potential for higher profits The hidden loss in market share The hidden increase in production cycle time The hidden labor associated with ordering replacement material
In almost every company, the COPQ exceeds the profit margin.

141

Direct Costs of Failures
Internal Failure
Costs associated with defects found BEFORE the customer receives a product or service Costs associated with defects found AFTER the customer receives a product or service
External Failure
Costs to Control or Avoid Failures

Appraisal Cost
Costs associated with measuring, evaluating, or auditing products or services to assure conformance to quality requirements Costs of activities specifically designed to prevent poor quality
142
Prevention Cost

Optimum Quality Costs
Total Quality Costs
Cost per good unit of product
Internal & External Failure Costs
The modern COPQ model depicted here shows failure costs going to zero at 100% conformance (zero defects). Accordingly, appraisal and prevention costs reach a maximum at zero defects. The total COPQ is obtained by adding the two sets of costs at a given conformance level. Adapted from Jurans Quality Control Handbook (p.4.19), by J.M. Juran and F.M. Gryna (Eds.), 1998, New York: McGray-Hill
Minimal COPQ Appraisal & Prevention Costs
0 (100% Defective)
Quality of Conformance, %
100 (Zero Defects)
143
Where does COPQ come from?

Suppliers
Revenue
Visteon
Revenue
Customers
Revenue
Materials, Equipment
PD, A&S, Mfg. Design, Capital, Labor
waste
waste
waste
COPQ
144
Traditional Cost of Poor Quality

Customer Returns Testing Costs Inspection Costs
Scrap
Quality Rejects
4% of Visteons $18.5B in sales is $740M
145
COPQ Data
Waste, Spoilage, Rejects & Rework As Percent of Sales
Manufacturing Industry
Poor Quality Cost as Percent of Sales Low High Median Profits as Percent of Sales
Aluminum Die Castings Aluminum Extruded Products Bolts, Nuts, Rivets & Washers Foundries: Aluminum Forgings-Nonferrous Metal Stampings Steel Wire & Related Products Automotive Stampings Electronic Components Industrial Machinery Metal-Cutting Machine Tools Motor Vehicles, Parts Plastics Products Screw Machine Products
4.3 4.4 5.2 5.2 5.9 5.9 5.9 4.3 6.3 7.0 6.1 6.1 6.9 5.3
7.1 7.0 7.1 7.3 6.9 7.2 7.2 7.0 8.2 8.2 7.2 8.1 7.8 7.0
2.3 1.2 2.2 2.9 1.6 3.0 2.9 2.1 4.1 3.6 3.3 2.7 1.5 2.2
Source: Journal for Tooling & Production. December, 1994. 146
Total Cost of Poor Quality

Lack of Follow-up on Current Programs Loss of Market Share Premium Freight Costs Excess Inventory Excessive Employee Turnover Travel Costs 20% of Visteons Excessive Overtime $18.5B in sales is $3.7B Pricing or Billing Errors Excessive Field Service Expenses/Resources Supplier response to non-conformance issues Customer Satisfaction Maintenance
147
COPQ Example: Operational

Air conditioning condensers go through an end-ofline mass spectrometer leak check. Those that fail are bubble tested in a dunk tank and repaired.
Mass Spec Testing No Leak? Pack and ship
Yes
Dunk tank test to find the leak
Hidden Factory
Yes Repair Find Leak?
No No 3rd try? Yes Scrap part
148
COPQ Example: Operational (contd)

COPQ includes:
Equipment, floor space, and personnel to dunk tank test. Equipment, floor space, and personnel to repair parts. Costs to move/handle the material, including costs of parts damaged during movement. Costs of extra dunnage to accommodate parts in the hidden factory. Costs of scrap condensers (net of reclaimed aluminum.) Lost production due to retest, including overtime costs to meet customer requirements. Other inventory carrying costs on product being reworked.
149
COPQ Example: Transactional

A CPARS prototype tooling order has an incorrect buyer code. It is rejected back to the requisitioner, who must then spend time correcting and resubmitting.
Costs include the time of the requisitioner, the buyer, and anyone else who handled the order. Other costs may accrue due to this delay:
premium tooling funds to meet deadlines delayed incorporation of material cost savings overtime to test the prototypes and still meet timing
150
Visteon Opportunities
Visteon 4% of sales = $740 Million
Visteon 20% of sales = $3.7 Billion

VISTEON CONFIDENTIAL
Where is the Money?

Visteon Spending ($B)
10 5 0
Materials
Mfg.
Eng., A&S Equipment
If Visteon COPQ is 20% of sales, then

2
Total COPQ ($B)
1 0
Materials
Mfg.
Eng., A&S Equipment
152
Visteon COPQ Estimates

Cost Element
Items Related to QRs Launch Costs Stop Ships/Field Actions Financial Controls Supplier spills/premium freight Plant QA Scrap and Excess Inventory Manufacturing Costs Equipment and Process Quality Other Support Costs Total $1.01B
Estimated Annual Cost

$97.3M $35M $22.4M $72.3M $40.5M $22.7M $71.8M $361M $95M $192M
153

Our material and equipment suppliers also have COPQ This COPQ is included in the prices Visteon pays for material and equipment This COPQ is not shown in the $1B estimate The $AVE program is our primary initiative for reducing COPQ with our material and equipment suppliers The $AVE program target is to reduce our costs by $1.2 B over three years
154

Another major category of COPQ is presently being paid by our OEM customers, and by consumers the costs of replacing defective products in the field A major portion of this category of COPQ is warranty
Our major customer Ford presently pays more than $400 Million per year in warranty costs associated with Visteon products
155

If we add these three categories of COPQ, we can see a PARTIAL estimate of Visteon COPQ:
Initial internal estimates:
$AVE 3-year target: Annual warranty (partial):
$1 Billion
$1.2 Billion $0.4 Billion
Partial est. of Visteon COPQ: $2.6 Billion (14% of sales)

So how do we get the money?
156
How is Visteon Attacking COPQ?

Visteon Breakaway Improvement
Aggregated improvement measures (COPQ, Revenue)
Improvement Initiatives
Tools, Techniques, Processes

157
2002 Profits
Volume/Exdhange/Pricing/Econ.
Information Technology
New Business Probability
Material Efficiencies
Manufacturing Efficiencies
Restructuring Saving Admin, Selling, Mkt, & Eng. Efficiencies Priceable Design
Breakaway Objectives for COPQ
Cost of Poor Quality ~ $1850 M

Profitability Gap Progress To Date
158
COPQ Improvement Initiatives

$AVE Program
Manufacturing Efficiencies Engineering/A&S Efficiencies TVA/TVM

Note: $AVE, Manufacturing Efficiencies, and Engineering/A&S Efficiencies are internally driven initiatives. TVA/TVM is externally driven.
159
How Does a COPQ Project Work?

Scope/define the project Trace the usage of resources
Identify quality-related activities Determine costs associated with those activities
Identify/prioritize specific improvement opportunities Initiate improvement projects Keep track of improvement projects
Results as expected? Further opportunities?
160

Does this method look familiar? Scope/define the project Trace the usage of resources Define Measure + Value Stream Map Analyze Improve Control
Identify/prioritize opportunities Initiate improvement projects Keep track
161

What tools and techniques can we use to get the money?
In house:
Supply base:
Lean Six Sigma (DMAIC)

$AVE
162
Cost of Poor Quality

Any questions?
163

Mod 2 ProgMgmt COPQ Sep 03

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Program Management

Black Belt Training Module #2

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Dual purposes of the material:

Zip the Monkey.

Project Management Theory

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Management Theory Agenda (cont.)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

PurposeWhy Project Management?

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Problem Statement (cont).

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Management Tools

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Scheduling (cont.)

Precedence relationships define how tasks relate to one another.

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Example WBS and Gantt Chart

Month 4 w2 w3 13-Aug 20-Aug

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Scheduling (cont.)

Gantt Chart from MS Project

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Scheduling (cont.)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Project Scheduling (cont.)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Critical Path Method

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Critical Path Method (cont.)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Critical Path Method

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Critical Path Method Example

Lets map out the network diagram.

Critical Path Method Example

Hold event (1 week)

Select Candidates (1 week) Follow Up (1 week)

CPM Example (continued)

Early start is the latest of the predecessor activities early finishes

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

Early finish is the early start plus the duration 26

CPM Example (continued)

These items have no predecessors, so they can start immediately

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

CPM Example (continued)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

CPM Example (continued)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

CPM Example (continued)

Repeat through the chart

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

CPM Example (continued)

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.

CPM Example (continued)

Earliest late start of the successor tasks

Late Start = Late Finish Duration

Visteon Corporation BB Mod #2 Program Management Rev 3.1 9/03.