PwC *connectedthinking

March 8th, 2006

March 8th, 2006
Toronto, Canada
Toronto, Canada
Cost Out!
Cost Out!
A Lean Six Sigma Approach to Drive Out Costs*
A Lean Six Sigma Approach to Drive Out Costs*
PwC *connectedthinking
March 8th, 2006
Page 2
PricewaterhouseCoopers LLP
Lean Six Sigma Key Messages for Today
A different perspective is required to see new Cost Out opportunities
A structured, rigorous approach is required to realize savings
Lean Six Sigma is a broad methodology and toolset
Lean Six Sigma can be applied to any process, in any industry
Agenda
Introduction
Case Studies Lean Six Sigma in Action
Cost Out! A Lean Six Sigma Approach
Summary
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Introduction
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Scenario:
You are the owner of a very successful Pizza restaurant. You are
leaving for a two month business trip and have asked the manager
of your restaurant to e-mail you a report every Monday morning that
includes five pieces of data about your restaurant that are most
important to you. List five:

Lean Six Sigma An Exercise

Introduction
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PricewaterhouseCoopers LLP
Scenario:
Now assume you are a customer looking to go out for pizza with your
family. You have several choices of pizza restaurants. They are all
about the same distance from home. How do you decide which
restaurant to go to? List five:

Lean Six Sigma An Exercise

Introduction
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PricewaterhouseCoopers LLP
Owners List:
Revenue
Costs
Customer Satisfaction
Employee Attendance
Supplier Issues
Customers List:
Price
Waiting Time
Adequate Parking
Friendliness of Staff
Taste of the Pizza
Lean Six Sigma An Exercise
Introduction
1. Define value from the customers perspective
2. Balance customer needs with the business constraints
3. Identify and prioritize improvement opportunities
4. Drive improvements and realize cost savings
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PricewaterhouseCoopers LLP
Lean Six Sigma Core Concepts
Introduction
Significant costs can be removed from the
organization by focusing on these core concepts.
1. Measure your process
2. Eliminate Waste
3. Eliminate Non value added activities
4. Reduce Variability
5. Eliminate Defects
6. Repeat
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Case Studies
Lean Six Sigma in Action
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ROI for Lean Six Sigma
Case Studies Lean Six Sigma in Action
GE Annual Report 2004 - Lean Six Sigma
Leveraged Lean manufacturings tools for reducing cycle time with the problem-
solving capability of Six Sigma
In the last two years;
- Transportation improved inventory turns from seven to nine
- Advanced Materials improved receivables by six turns
- $2.7 billion of improvements in working capital in 200304
- Commercial Finance focus on margin expansion, risk management and lower cost
0
0.5
1
1.5
2
2.5
1996 1997 1998 1999
Invested ($B) Savings ($B)
0
10
20
30
40
50
60
2000 2001 2002 2003 2004
Invested ($M) Savings ($M)
General Electric Maple Leaf Foods Canada
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PricewaterhouseCoopers LLP
The Impact of Lean Six Sigma
Crown Corporation/Service Provider
Paying customers are suppliers
Moving it faster doesnt improve cash flow
Mid 90s
Big batches from one process to next
Wait, then processed as fast as possible
Adopted concept of Flow, Voice of the customer
Benefits
Despite declining volumes (due to email):
10 years of consecutive profitability
Reduced footprint
Reduced material handling.
Reduced on-floor inventories
Reducing lead time, improving quality
Increased capacity
Improved labor relations
Operation Balance Chart
Takt time of 24 sec
Each bar represents one operator
built by stack up of work elements
Case Studies Lean Six Sigma in Action
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PricewaterhouseCoopers LLP
The Impact of Lean Six Sigma
Early '90s, facing a deregulated commercial airline
industry that had begun to focus on profitability
Needed to reduce costs and improve quality
Today, Aerospace leader in profitability
Washington 737 Factory
Line moves products from one assembly team to the next
at the steady pace of two inches per minute
Benefits
Shortest final-assembly time of any large
commercial jet
Assembly time (11 days) - 61 percent reduction
WIP inventory - 55 percent reduction
Stored inventory - 59 percent reduction
Allow for interior configuration and systems
decisions closer to delivery
2000: 26 Planes
2005: 5 Planes
Case Studies Lean Six Sigma in Action
March 8th, 2006
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PricewaterhouseCoopers LLP
Major Canadian Bank
Background
Major Canadian bank has a branch network of more than 1200 branches
across the country
The bank has high sales volume of personal and small business loans
The loan process takes more than 14 days to complete with error rate higher
than 63%
Role
Review the end to end process
Radically rethink and redesign the process to bring about significant cost
savings and significant quality improvements
Key issues
Expensive operation
High error rate
Too many hand-offs and redundancies
Outcome
Error rate reduced from 63% to 20%
Overall lead time went from 14 days to 5 days
Cost was reduced by $2.5M
Radical process redesign generated significant
improvements in Cost, Lead Time and Quality.
Case Studies Lean Six Sigma in Action
March 8th, 2006
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PricewaterhouseCoopers LLP
International Manufacturing Company
Background
Major Plastics manufacturing company
9% of all invoices needed to be corrected
Increasing customers complaints about receiving multiple invoices
Invoice errors impacting the ability of the business to predict average selling
price (ASP) and forecast costs
Role
Determine the root causes for invoice inaccuracies
Improve the process to avoid invoice errors for the future
Key issues
Multiple broken processes
Complex processes involving many different functions and systems
Cross Functional teaming required
Outcome
Increased cash flow by $10M
Reduced costs by $8M
Reduced variability in pricing estimates by 80%
Modifications to billing process created significant benefits in
Costs, Cash Flow, and Accuracy of Pricing Estimates.
Case Studies Lean Six Sigma in Action
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PricewaterhouseCoopers LLP
Major Transportation Company
Background
Major transportation company needed to:
- Increase customer satisfaction
- Acquire more market share
- Increase efficiency in their finance functions
Role
Identify inefficiencies in finance function
Improve customer service
Key issues
Redundant Processes
Increasing costs
Poor customer satisfaction
Outcome
Eliminated non-value added steps in finance function
Potential to reduce staff by 20 FTEs
Reduced product/services costs by over $1.2M
Back office focus increased resource efficiency and
generated cost out by targeting high dollar contracts.
Case Studies Lean Six Sigma in Action
March 8th, 2006
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PricewaterhouseCoopers LLP
International Manufacturing Company
Background
Major Glass manufacturing company
Inventory cost is more than 50% of the cost of operation
70% of a fabrication plant space is used for inventory
Plans to purchase more space to accommodate an expansion in the operation
Role
Improve the current process to avoid the anticipated expansion requirements
Key issues
Large inventory
Lack of space
High product scrap rate
Low product turnover due to inadequate product quality
Outcome
Map the end to end plant operation for each product family
Developed a J ust-In-Time pull system
Reduced On hand Inventory by 70%
Increased available space by more than 50%
Increased Inventory turnover by 50%
Created a Pull-System to reduce WIP, drive inventory turns
and eliminate the need for an additional warehouse.
Case Studies Lean Six Sigma in Action
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PricewaterhouseCoopers LLP
Cost Out!
A Lean Six Sigma Approach
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Lean Six Sigma Roadmap to Cost Out!
1. Have a clear vision. Provide a standard that must be achieved. Listen
to your customers, your shareholders, your business.
2. Link your vision to your business strategy, and your business strategy to
tactical execution.
3. Select projects/initiatives that will advance your strategy the most.
Use data to decide.
4. Involve your people. Get data. Use the right tools to solve the right
problems. Fix broken processes.
5. Repeat the process.
Cost out is part of overall strategy.
Use data, not intuition, to direct your efforts.
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
T
ra
n
s
a
c
tio
n
V
o
lu
m
e
P
e
r
c
e
n
t
C15
Count
24.0 16.7 4.3 3.5 2.0
Cum % 49.4 73.4 90.1 94.4
922
98.0 100.0
447 312 81 66 38
Percent 49.4
Other E D C B A
2000
1500
1000
500
0
100
80
60
40
20
0
Pareto Chart of Transaction Volume by Product Type
Percent of Selling Price that has beenLost
Fre
q
u
e
n
c
y
100 80 60 40 20 0
250
200
150
100
50
0
Mean 43.61
StDev 25.82
N 799
Example of Lost SellingPriceAnalysis
Normal
ListPrice
N
e
t p
ric
e
40000 30000 20000 10000 0
25000
20000
15000
10000
5000
0
Scatterplot of PwC_ avg_ net_pricevs ListPrice
3. Select projects/initiatives that will advance your strategy the most.
Use data to decide.
3a. Measure Performance
Develop KPIs that link to strategy
Measure constantly
Hold people accountable
3b. Respond to Breakdowns
Focus on KPIs that are failing
Analyze data to identify broken processes
Pinpoint problems
Identify Big Hitters and focus efforts on reducing process
variation and eliminating the Hidden Factory.
Cost Out! A Lean Six Sigma Approach
Lean Six Sigma Roadmap to Cost Out!
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PricewaterhouseCoopers LLP
4. Involve your people. Get data. Use the right tools to solve the
right problems. Drive out variation and non value added work.
CREATE FIX STREAMLINE
Create effective and
efficient processes
where none exist
Design error free
products and services
Goal
Six Sigma
Improve existing
processes
Reduce process
variability
Eliminate root causes of
errors
Six Sigma
Improve existing
processes
Eliminate non-value
added activities
Eliminate waste
Lean
Tools
CYCLE TIME
Before
After
Cost Out! A Lean Six Sigma Approach
Empower your people to solve problems. Focus on the data,
eliminate root causes and mistake proof the solutions.
Lean Six Sigma Roadmap to Cost Out!
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PricewaterhouseCoopers LLP
The higher the sigma, the fewer the defects, the better
the performance.
6 represents a near flawless process (3.4 defects per
million opportunities).
Most organizations operate at 3 to 4
Sigma a Greek letter that represents the statistical
measurement of the variability or spread of data.
Six Sigma measures how well a process or product
meets customers requirements.

Defects per
Million
Opportunities
1
2
3
4
5
6
697,672
308,770
66,810
6,209
232
3
Lean Six Sigma Core Concept:
Measure your process
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
Unsafe drinking water for almost
15 minutes each day
99.99966% Good (6.0 ) 99% Good (3.8 )
20,000 lost articles of mail per
hour
Lean Six Sigma Practical Meaning
Seven articles lost per hour
5,000 incorrect surgical
operations per week
Two short or long landings at
most major airports each day
200,000 wrong drug prescriptions
each year
One unsafe minute every
seven months
1.7 incorrect operations per
week
One short or long landing every
five years
68 wrong prescriptions per
year
Source: American Society for Quality
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
Lean Six Sigma Core Concept:
Focus on Variation
Companies tend to measure and track averages
Time
Customers feel the effect of variation, not averages.
Variation = Opportunity.
Average
(Typical Business Goal)
Customer
requirement
Why? Defects cost money
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
Market
Inputs
Business
Processes
Suppliers
Critical
Customer
Requirements
Process
Outputs
Defects
Process variation creates Defects. Defects cost you money and frustrate
your customers. Follow the defects and fix the root cause.
Output variation is caused by both variation in
process inputs and by variation in the process itself
Variation in
the process
output causes
defects
Lean Six Sigma Core Concept:
Focus on Variation
Cost Out! A Lean Six Sigma Approach
March 8th, 2006
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PricewaterhouseCoopers LLP
Lean Six Sigma Core Concept:
Rolled Yield
Process
A
Process
B
Process
C
Supplier
Inputs
Outputs to
Customer
Efficiency of Process Step
93% Good 93% Good 93% Good
81% Good
(2.4 Sigma)
99% Good 99% Good 99% Good
97% Good
(3.4 Sigma)
99.99966%
Good
99.9999% Good
(5.8 Sigma)
99.99966%
Good
99.99966%
Good)
Waste and Rework are anchors that limit the
capacity of the organization and increase costs!
3.0 Sigma
3.8 Sigma
6.0 Sigma
Sigma Score
For Process Steps
Overall Yield
Example: Business Process with 3 key steps
What is the probability of accomplishing the task error free?
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
Lean Six Sigma Core Concept:
Example: Identify and Eliminate the Hidden Factory
The Hidden Factory is any non value added process step.
Cost Out! A Lean Six Sigma Approach
What Management
thinks it is
What it
really is
What it
should be
What it
could be

Current Situation Lean Six Sigma Efforts
PricewaterhouseCoopers LLP
Observe that 2 things are always happening in any process
Focus on reducing the amount of Non Value Added work.
The customer will not pay for inefficiencies.
Lean Six Sigma Core Concept:
Focus on Waste
Things that customers will pay forWork or Value
Things that customers do not want to pay for
Time
Value Added Work
After
Before
Non Value Added Work
Time
Cost Out! A Lean Six Sigma Approach
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PricewaterhouseCoopers LLP
Improve customer satisfaction
Better understand and meet
changing customer
requirements
Create new customer
opportunities
Define key metrics
Improve market position
relative to competitors
Increase productivity
Improve capacity and output
Increase product reliability
Reduce exposure to risk
Minimize inventory
Improve efficiency of supply chain
Improve delivery and quality
performance
Cost Out! A Lean Six Sigma Approach
Cost Out Other Improvements
Lean Six Sigma Targets
Different problems require different solutions.
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Summary
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Lean Six Sigma Some Final Thoughts
Vision + Leadership + People + Tools = Results
Adopting a different perspective allows you to see new opportunities.
Identifying variability and waste in your process is critical to taking cost out.
Tools do not solve problems. People do.
Lean Six Sigma is a means to an end.
Summary
PwC *connectedthinking
2006 PricewaterhouseCoopers LLP, Canada. PricewaterhouseCoopersrefers to
PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership, or, as
the context requires, the network of member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
*connectedthinking is a trademark of PricewaterhouseCoopers LLP.
Scott Crowley
416 814 5704
scott.b.crowley@ca.pwc.com
Thank you.
www.pwc.com/ca/leansixsigma
Paul Snowdon
416 814 5891
paul.snowdon@ca.pwc.com
Joe Rafuse
416 941 8447
joseph.b.rafuse@ca.pwc.com