Making The Case For Quality Optimizing Purchasing Process

Making The Case For Qualityoptimizing Purchasing Processessaves 1 Mil

Making the Case for Quality Optimizing Purchasing Processes Saves $1 Million • Using the DMAIC method, a Six Sigma improvement team at MWM INTERNATIONAL Motores in Brazil improved the company’s supplier selection process. • Known as the Moving Forward team, this group applied a wide variety of quality tools to reduce the price/weight ratio for bolts, a key component for the company’s diesel engine products. • By streamlining processes, reducing variability, and increasing efficiency, the yearlong project helped reduce engine bolt costs by $1 million. • The team shared its success story with a worldwide audience when it participated in the final round of competition in the 2009 International Team Excellence Award Process.

At a Glance . . . Often the simple things create the biggest impact. But could a change in purchasing processes for the most basic manufacturing components, like bolts, actually lead to $1 million in savings, increased effi- ciency, and reduced process variation? When a multidisciplinary Six Sigma improvement team tackles the issue, the answer is a resounding yes! About MWM INTERNATIONAL MWM INTERNATIONAL Motores is a wholly-owned subsidiary of Navistar, a major worldwide diesel engine manufacturer and current leader in diesel engine technology and development in Latin America. Operations include a technology and business center in Sà£o Paulo, Brazil, as well as three South American manufacturing sites—Sà£o Paulo; Canoas, Brazil; and Jesus Maria, Argentina. The company’s engine products range from 2.5 to 9.3 liters and from 50 to 375 cv and serve a wide range of markets in the vehicular, agricultural, industrial, and marine sectors. Among MWM INTERNATIONAL’s customers are Ford, GM, Volvo, Volkswagen, New Holland, Troller, and Valtra.

Focusing on Purchasing Activities to Reduce Waste As an engine maker, MWM INTERNATIONAL uses more than 400 different bolts in its manufactur- ing operations, which led to inefficient purchasing strategies for this commodity. Because bolts are a standardized product, both the material and production processes are similar for the entire range of existing bolts. Therefore, MWM INTERNATIONAL officials believed it was reasonable to expect a linear relationship between the price of bolts and steel—the raw material from which they are made. The relationship is expressed in a formula called linear price performance or LPP. This comparative method evaluates price and measurement correlation in kilograms, linear meters, square meters, or liters. LPP is calculated by dividing price per a measurement unit, as shown in the examples below. price price weight = LPP or length = LPP Company leaders surmised that finding a way to optimize the organization’s purchasing processes for engine bolts would reduce the LPP, thus lowering costs and reducing waste. This Six Sigma improvement project was identified as a result of the company’s culture of continu- ous improvement, whereby MWM INTERNATIONAL officials consistently pursue opportunities to develop new projects that follow the define, measure, analyze, improve, and control (DMAIC) method- ology.

The organization uses the following tools to help pinpoint new process improvement projects: by Janet Jacobsen July 2009 ASQ Page 1 of 4 • Voice of the customer, to identify customer requirements. • Voice of the process, to learn about process capability. • Process or value stream maps, to understand the organization’s processes. • Failure mode and effects analysis (FMEA), to discover possible failures. • Critical-to-quality (CTQ) trend analysis, to identify good and bad trends. From the onset, the team involved stakeholders— both internal and external— in the effort. Stakeholders, listed in Table 1, played key roles in mapping a project charter and with brainstorming and process- mapping exercises that helped define both positive and negative impacts on various activities.

Searching for a Cause and Formulating Solutions The improvement project kicked off in August 2007 with an 11-member group called the Moving Forward team. See the sidebar, Meet the Project Team, for a complete list of team members. These individuals were carefully selected from a “talent bank†of employees who completed training in lean, Six Sigma, or other process improvement strategies. Identifying Root Causes After gathering data on LPP, including completing the pains- taking task of checking the weight of every bolt, the team identified CTQ factors. Arranging the CTQs on a process map enabled the team to better estimate the incidence of each, as well as understand distinctive features of the factors in every stage. Identifying all factors was necessary, but proved difficult because some were not readily apparent. “We had to walk through every process step to identify the factors and relate them with the LPP,†explains Fernando Lima Lopes, Six Sigma Black Belt coach on this project. Next, the team selected the most critical factors and conducted a more thorough analysis with a prioritization matrix, where scores were assigned according to the influence of each factor in the response variable. The four factors listed below were cor- related in an attempt to observe a cause-effect relationship and thus determine the root cause of the problem: • The supplier—some vendors offer competitive advantages that affect the final price of bolts. • Annual purchase volume that showed a negative correlation with LPP. • The technical specifications of each bolt that may affect the price. • The commodity strategy for conducting the quotation process to select bolt suppliers.

Team members then used design of experiments to help deter- mine the relationship between the response variable, LPP, and the scored factors. The four selected factors were carefully analyzed and verified during each process phase. Eventually, a quotation was simulated for a bolt in each category. The simulation included purchasing volumes in three levels and with four separate suppli- ers. Quotes were requested from suppliers and the team drafted a model, including LPPs from the suppliers’ returned quotes. As a result of the simulations, the team observed that higher LPPs resulted from low volume purchases from a particular supplier, referred to here as Supplier A. Data confirmed that Supplier A offered a competitive advantage only for very high volumes of bolts and that 91 percent of the bolts purchased came from this supplier. In addition, team members discovered that the company’s commod- ity strategy did not include recommendations on annual purchasing volumes, but did advocate giving Supplier A the opportunity to bid on any new business. Thus, the team identified incorrect supplier selection as the root cause. “We could see that good planning led us to identify the true root cause of the problem and to choose correc- tive actions to neutralize this cause,†recalls Lopes.

Paper For Above instruction

The initiative undertaken by MWM INTERNATIONAL to optimize its purchasing process for bolts exemplifies a targeted and effective application of Six Sigma methodologies to achieve substantial cost savings and process improvements. This case study delineates the problem, the approach, the tools, and the results of a systematic effort rooted in DMAIC principles, emphasizing how targeted process enhancements can yield significant financial and quality benefits.

The core problem identified was the inefficiency in procurement strategies involving over 400 different bolts in production, leading to waste and high costs. These bolts, although standardized, varied significantly in price relative to their weight, and the company’s previous approach did not consider optimal volume purchasing strategies or supplier alignment. Recognizing these issues, the team sought to analyze the factors contributing to high costs, with a focus on the price-performance relationship determined by the Linear Price Performance (LPP) formula, which involves the ratio of price to material measurement units.

Utilizing the DMAIC framework, the team first defined the problem and measured costs through detailed data collection, including weighing all bolts to establish a comprehensive cost basis. The measure phase revealed a high incidence of costs associated with Supplier A, which supplied 91% of the bolts, especially at lower volumes where the price advantage diminished substantially. The team analyzed process capability and captured voice of the customer and process data using tools such as process maps, FMEA, and CTQ trend analysis, thereby understanding the key variables affecting costs and process variability.

During the analysis phase, the team identified root causes based on data correlations, such as supplier efficiency variations and purchase volume effects. Design of experiments helped quantify the impact of factors like supplier choice, technical specifications, and purchase volume on the LPP. The most significant root cause was found to be inappropriate supplier selection, driven by the absence of an optimized commodity strategy and a lack of volume-based contracting guidelines.

To develop solutions, the team engaged in brainstorming, benchmarking, stakeholder interviews, and waste analysis, leading to the formulation of targeted corrective and preventive actions. Corrective actions involved renegotiating contracts with the current supplier to align costs with market prices, while preventive measures included establishing guidelines for volume-based supplier selection and developing a comprehensive commodity strategy integrating procurement volume planning.

The analytical approach extended to simulations predicting future outcomes, which confirmed that the solution strategies would significantly reduce the linear price performance ratio, thus lowering costs. Small-scale pilot testing validated the impact on costs and variability, showing a 13.6% reduction in bolt costs—equivalent to nearly $1 million in savings—and a near 90% reduction in process variability, enhancing quality consistency.

Stakeholder management played a crucial role throughout the project, addressing resistance from suppliers and internal teams concerned about quality and development timelines. Engaging stakeholders via meetings, small-scale implementations, and transparent communication facilitated buy-in and mitigated resistance, ensuring smooth change management.

The project’s success was quantified through a rigorous monitoring system, including performance dashboards and quote approval forms aligned with market LPP benchmarks, thereby institutionalizing continuous improvement. The team’s comprehensive approach illustrates the power of structured problem-solving, data analysis, and stakeholder engagement in driving substantial operational and financial improvements in manufacturing procurement.

Ultimately, the project resulted in a 13.6% reduction in bolt procurement costs, saving approximately $1 million annually, along with a major decrease in process variability. Although the goal of reducing the lead time for bolt development was not fully realized within the targeted period, significant process improvements laid the foundation for ongoing enhancement efforts. Sharing the success story within the organization and at international forums underscored the importance of systematic quality practices in manufacturing efficiency and cost management.

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