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Cost diminution by DMAIC, DOE implementation in white goods sector

Published on 4th Jan, Edition 01- 2016

 

Abstract:

Quality cost has greater impact on the productivity and profit margin of the organizations. In Pakistan economy, manufacturing sector has less revenue due to no or minimal implementation of lean manufacturing and six sigma methodology. White goods sector is gaining its market popularity due to increasing demand and business opportunity. Nowadays, organizations are facing both external and internal quality cost. External cost means warranty claims and customer dissatisfaction. Internal cost means repairing the product against defects inside production facility. External customer is satisfied by replacing or repairing the product as per terms and conditions and gets the claim of raw material from suppliers as per agreement. Internal cost is due to company own negligence and need improvements to increase the profit margin.The actual primary data of six months are gathered for analysis and improvement by implementing Lean Six sigma tool DMAIC, lean manufacturing tools 5S, Kanban, Key Performance Indicator, Overall equipment effectiveness and Design of experiment statistical tool. Minitab 16 is used for data analysis and it has taken 8 months to achieve the sigma level of 4 from 3. Internal failure quality cost is focused in this research to increase the company profit margin.

Introduction:

In present era, the manufacturing firms pay higher and higher rejection cost which has reduced profit revenue of the company. The companies have started its implementation because of ongoing cost saving strategy. This research working is important and significant from two aspects; first, the cutting quality cost and financial gaining due to less complaint and productivity enhancement. A white good CIL freezer department is analyzed due to its popularity in market; more than 500 processes including micro and macro &more than 400 manpower’s are involved in its production operation system. This large and complex system needs structural approach of lean sigma to reduce variation and eliminate waste. This sector is increasing its popularity and still there is a lot of business opportunity in market because of hot climate region and necessity of white good products. Structure of this research includes Research Methodology in which DMAIC approach and lean manufacturing concepts are used for doing analysis and bring improvements in existing system. Tools used Define phase are Project Charter, in Measure phase are Brainstorming, Description of defects, Check Sheets, Cause and effect diagram, Sigma Level determination, in Analysis phase are Pareto Chart, in Improvement phase are Design of Experiment, Improvement Proposal, and Result-Sigma Level determination and finally in Control phase Attribute Control Charts are constructed to check the control of system.

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Research methodology:

The internal poor quality cost has decrease the company profit revenue and late delivery of product to market. The outer finishing and quality of product decreases due to repairing and less attractive for customer to purchase. The company spends average Rs. 500 for repairing work on each unit. The main focus is to reduce the annually internal cost of poor quality of white good products to Rs. 3 from Rs. 19 Million and ensure delivery of superior quality product right at first time. The primary data is based onsix months i.e; February to July 2015. Daily data is collected from production department and recorded in daily sheet sheets. At the end of month the complete data of whole month is calculated and mentioned in monthly check sheet. The major internal defects are dent, polyurethane leakage, paint weak adhesion, incomplete polyurethane insulation, scratch, plastic cracks, less cooling, pipe joints leakage, door misalignment & side curve and these defects are due to number of reasons as described in cause and effect diagram.

 

In DOE, three variables named old machinery, process layout and Raw materials which are major critical factors for process improvement was found after brainstorming session. At this point in the DOE analysis, the selected three variables are used to build a statistical table comparing the combination of low and high levels for each variable. Eight runs are created in the screening design. Raw material is main factor for poor quality of product and contributes to most defects as mentioned earlier. To overcome this, supplier evaluation and revaluation key performance indicators are implemented. The reason for selecting 5S and Kanban in process layout improvement is to eliminate seven types of waste (muda) as it is primary focus of lean manufacturing. The productivity has increased to 10% by using the above approaches because of minimal waiting, less movement of materials, such as work-in-process (WIP) being transported from one operation to another, less processing like rework and repairing because of less defects, less steps taken by employees, optimal inventory level and no overproduction carrying cost.Overall Equipment Effectiveness lean manufacturing tool is used to enhance the productivity and quality of white good machinery. Overall Equipment Effectiveness (OEE) has increased to 79.17% from 51.04% by investing Rs.2 Million on machines.

Financial Data

Average Production per year = 10,000 x 12 = 120,000 White Goods Freezer
Repairing Cost per unit = Rs. 500
Sigma Team Cost = Rs. 1 Million
Implementation Cost = Rs. 2 Million
Annually Cost Before Lean Sigma Improvement=120,000×31.53%x500 = Rs.19 M
Annually Cost After Lean Sigma Improvement=120,000×5.15%x500 = Rs.3 M
Project Saving= Annual Saving – Sigma Team – Implementation Cost = (19-3) – 1 – 2 =Rs. 13 Million
The U chart is an attribute control cart and is constructed against Sep 2015 repairing data which indicates that the process is in control. The control tests of 4 sigma which were use pass in this case.

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Conclusion and recommendations:

The research paper is based on empirical evidence that by applying lean sigma concept the organization profit margin increases drastically. The company has achieved sigma level of 4 and cost reduction of Rs. 13 Million by application of DMAIC and lean manufacturing methodology with DOE statistical analysis. Future work can include peer and trend analysis in same organization and sector.

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