Continuous Improvement Fundamentals Flashcards
What are the three major components of LSS?
- organizational culture
- improvement tools
- support system for the tools
What are the three main benefits of using LSS?
- improve quality and productivity
- increase profits
- it is more than a quality initiative - its a business initiative
What is the positive impact of LSS on organizations?
- reduce errors
- identifies and corrects flaws in the process
- contributes to success of the whole organization
What are the attributes of key business drivers?
- independent of performance of other metrics or how team members react to contextual conditions
- customer-centered
- measure performance over time
- developed collaboratively by those who collect and use data
linked with organizational goals - provide direct information
- drive organizational success for the long run
- maximize what the company can control
What are the five most common key business drivers?
1) Profit
2) Market Share
3) Customer Satisfaction
4) Efficiency
5) Product Differentiation
What is profit?
positive financial gain by making more money than is spent
= total revenue - total cost
What is gross profit margin?
= (total sales - COGS)/total sales
What is operating profit margin?
= earnings before tax and interest / total sales
What is net profit margin?
= net profits after taxes / sales
What is market share?
= percentage of the overall industry controlled by a business
What is customer satisfaction?
exceeding or meeting a customer’s expectations and requirements as quickly as possible while keeping cost to the customer low, needs may be spoken or unspoken
What is efficiency?
measurement of something that:
1) customers desire
2) works in a quick and organized way
3) is accomplished with little waste
What is product differentiation?
the way in which an organization markets and presents its product and services to be different and better than its competitors and/or other products their own company offers
key question: “how does the product add value to customers?”
What is a business case?
financial justification for an improvement project
What are some types of financial costs to consider?
- personnel costs
- customer service costs
- raw material costs
- administrative costs
- opportunity costs
- failure costs
- inspection costs
What is nonconformance?
when a specification requirements is not met
What is a defect?
any nonconformance of quality
How should a GB respond to nonconformance?
1) identify the nonconformance(s)
2) establish a corrective action system
What is the cost of nonconformance?
the cost of not doing things right the first time, includes internal failures and external failures
What are some examples of internal failures?
scrap, excess/obsolete inventory, rework
What are some examples of external failures?
warranty costs, liability costs, loss of business
How do you calculate the cost of nonconformance?
1) list all cost elements
2) identify if internal or external failures (or N/A)
3) add up the total costs in each category
4) external failure total + internal failure total = cost of nonconformance
What is a cost-benefit analysis?
financial analysis tool used to determine the benefits provided by a project against its costs
What are the steps of a cost-benefit analysis?
1) define project(s)
2) analyze comprehensively all involved (stakeholders)
3) analyze costs
4) predict benefits
5) predict any subsequent costs
6) quantify in terms of capital (money)
7) use Net Present Value (NPV), Internal Rate of Return (IRR), or payback
8) verify robustness of model by modifying numbers (sensitivity analysis)
9) select most robust project with highest rate of return
When/why is cost-benefit analysis used?
- compare the benefits, costs, and risks of competing projects
- justify expenditures
- assist in performance of what-if analysis
- allocate resources among multiple projects
What is Net Present Value (NPV)?
= (sum of present value of future benefits) - (sum of present value of future costs)
What is benefit-cost ratio?
= (sum of present value of future benefits)/(Sum of present value of future costs)
What are the four categories of quality costs?
1) Prevention
2) Appraisal
3) Internal Failure
4) External Failure
How do you calculate total cost of quality?
= prevention costs + appraisal costs + internal failure costs + external failure costs
How does quality cost differ between manufacturing and services?
manufacturing quality costs = product-oriented
services quality costs = labor-dependent
What are a GB’s two main objectives?
1) reduce internal/external failure costs without growing prevention and appraisal costs
2) improve cost of quality at operations level (flows up to the business level as improvement in operating margin and overall profitability)
What are the three categories of operating costs?
1) Fixed costs: paid regardless of business performance
2) Variable costs: fluctuate depending on sales and production
3) Semi-variable costs: blend aspects of fixed and variable costs
How do you calculate operating costs?
= operating expenses + COGS
What is activity-based costing?
method to causally trace and assign resource expenses into costs in a way that costs budgeted and charged to an account truly represent all the resources consumed by an activity or item in that account
answers the question: “What event(s) drive costs?”
What is the benefit of activity-based costing?
optimizes cost decisions and control
What is a break-even analysis?
an analysis used to determine when a business will be able to cover all its expenses and begin to make a profit from a project
How do you calculate the break-even point?
= fixed costs / (sales price per unit - variable costs per unit)
What is the cost of risk?
the cost of managing risk and the associated losses
What are some examples of risk management costs?
- administration
- mitigation
- control
- transfer
What is a GB’s purpose in regards to cost of risk?
to recognize what can happen or what situations exist that may affect the achievement of the expected cost estimate
If the cost of risk exceeds the budgeted amount then there may be…
- reductions in scope or quality to try to stay in budget
- schedule extensions
What is transition?
the process of change from one state to another (high impact on success or failure)
What is centralized budgeting?
make all budget decisions from single source
What are the benefits of a centralized budget?
- reduce interior competition for resources
- reduce redundancies
- minimize misappropriations
What is Voice of the Customer (VOC)?
customers’ requirements for products or services
What is Voice of the Process (VOP)?
the performance of the process (indicates if VOC is satisfied most of the time)
allows us to determine if there are potential financial and customer benefits for fixing the problem
How do you determine or optimize the Voice of the Process (VOP)?
1) measure the process over time
2) determine what we expect the process to do 99% of the time
3) establish control limits 3 standard deviations from the mean
How is VOC different between B2B and B2C customers?
VOP is stable and VOC changes quite a bit
B2B vs. B2C
specific requirements vague requirements
consistent requirements varying requirements
requirements in contract no contract, often unspoken
What are nine LSS tools, methods, and techniques?
1) Portfolio Analysis
2) Hoshin Kanri
3) Feasibility Studies
4) Risk Analysis
5) SWOT Analysis
6) PEST Analysis
7) Contingency Planning
8) TRIZ
9) Initiative Management
What are the three levels of initiatives?
1) Six Sigma —> complex, high visibility, executive, multi-million dollar budgets, systemic level, several cross-functional processes
2) Mid-Sized —> a single process, monitored by portfolio management
3) Small-sized —> improving throughput of a production line, directors/mid-level management
What are some (11) key factors/questions when selecting a project?
1) Scope - are there boundaries that can be set for this project?
2) Strategic - does it align with top-level business strategy?
3) Chronic - is the problem chronic? has it been around a long time?
4) Significant - has the problem resulted in a lot of waste?
5) Size - how big is the problem? how can it be measured?
6) Potential Impact - if nothing is done, what is the impact?
7) Urgency - how soon does it need to be fixed?
8) Risk - risk of not doing anything? risk of change?
9) Potential Resistance - why is there resistance to change?
10) Sure Winner - will this be easy to accomplish? will the returns be great?
11) Measurable - is there data that can be measured?
What is a process?
a series of steps, or inputs and outputs, needed to produce a product or provide a service
What is the impact of inputs and outputs?
inefficiencies from input to output will increase cost and possibly reduce revenue
What is a feedback loop/quality control?
information and system for acquiring information to help ensure that inputs and outputs fulfill the requirements of the process and meet demands of the organization as a whole
What is a balanced scorecard?
a measurement tool that acts as a key measurement system to help an organization evaluate its performance in a balanced way
What are the four quadrants of a balanced scorecard?
1) customers
2) finances
3) internal business
4) growth and learning
What is the beneficial impact of a balanced scorecard?
clarifies vision and strategy, and turns them into action
What are some examples of financial key metrics?
Return on Equity (ROE) - shows how effectively a business utilizes its resources to generate revenue
Earnings per Share (EPS) - shows how well a company performs relative to the generated revenue compared to the number of outstanding shares of stock
Expense Growth - calculates the rate of growth or decline of expenses and assesses how well an organization gets managed
What is an example of a customer key metric?
Customer Satisfaction Index - represents the satisfaction of a customer with the products and services
What is an example of an internal business metric?
Customer Throughput - assesses how effectively an organization uses tech and processes for serving more customers as quickly as possible
What is an example of a learning and growth metric?
Education Hours - one way of assessing how much new learning is occurring to sustain future growth
What is the trend in cost to reduce defects?
the net “cost” to reduce defects actually decreases as one approaches Lean Six Sigma because resources that were tied up looking for and fixing defects can be redirected
Lean Six Sigma goals are…
- directly quantifiably connected to business goals
- work to:
1) simplify processes to reduce cycle time
2) reduce cost by increasing efficiency and eliminating non-value and steps
3) eliminate variation
What is automation?
technology that aims to remove human involvement and intervention in order to reduce waste and reduce variation
