What This Short Cut Covers
Successful development and commercialization of new products are critical to the long term viability of any business. The primary goal of product development is to enable a company to meet its goals for profitability and growth by introducing new, improved and innovative products to the market. The failure of a company to commercialize valuable new product ideas results in the commoditization of that company's product portfolio and potential failure of the business itself.
In this short cut we examine the business reasons that lead a company to adopt and implement the Design for Six Sigma methodology. During our discussion we examine the product life cycle that all products undergo, beginning with product development and ending with product decline. The impact of new, disruptive technologies on current products is also examined and illustrated with a case study example involving the replacement of vacuum tube technology by the transistor.
In addition, an examination of the economics of new product introduction is presented, describing the impact of low priced substitute and "surpriser and delighter" products on existing markets. Using traditional supply/demand economic analysis in combination with the Kano model, the authors explain the dynamic forces which move existing products from premium pricing to a state of commoditization. Finally, the authors take a detailed look at the financial metrics used to measure success in a DFSS project. During this portion of the chapter the authors discuss financial metrics such as Net Present Value; key reasons for failed commercialization programs; and the use of financial sensitivity analysis, including Monte Carlo simulation techniques.
This short cut describes in detail how DFSS brings value to companies. Using the language of business, the authors outline how Design for Six Sigma helps companies identify the needs of customers and emerging product trends through the use of a well defined, structured process. The authors also provides the reader with an understanding of how DFSS can be used to counter the forces of product commoditization and the entry of potentially disruptive technologies in the markets served by the business today.
Introduction
The successful development and commercialization of new products is critical to the long-term viability of any business. The word "products" in this context is used to mean not only physical items that are offered for sale, but also services, processes, and applications that the business provides to its customers. The primary goal of product development is to allow a company to meet its goals for profitability and growth by introducing new, improved, and innovative products to the market. The failure of a company to bring valuable new product ideas to the market ultimately results in the commoditization of that company's product portfolio, in addition to potential failure of the business itself.
The Product Life Cycle
Throughout the history of business, many companies have been forced to exit key market areas due to the entry of new and unexpected disruptive technologies. Every product experiences a life cycle, [1] shown in Figure 1. Prior to the introduction of a new product, significant effort is generally required to understand the needs of the marketplace. Substantial investment in research and development is often then required in order to fully develop the technology needed to support the introduction of the new product concept. When a new product is introduced, it takes time for the product to be accepted by the market. Upon gaining market acceptance, successful products experience a period of growth followed by a maturity stage in which sales volume stabilizes. When an adequate period of time has passed, the product enters a phase of product decline during which sales volume and price tend to be under severe downward pressure due to increased competition and the arrival of improved products from competitors.
Figure 1. The product life cycle
Products in every industry undergo the same product maturity process; the only difference is the pace of change for products in different industries. Products such as the Pony Express system or the buggy whip are classic examples of the product maturity cycle in action. As shown in Figure 2 and Table 1, these products were both ultimately impacted by disruptive technologies that eventually forced them into extinction. To see how a disruptive technology can impact an entire industry, let's take a more detailed look at the development of the electronics industry. Specifically, we now take a brief look at the fascinating history of the vacuum tube.
Figure 2. Maturation of message delivery
Table 1. The Impact of Disruptive Technologies
Where Have All the Vacuum Tubes Gone?
The Edison Effect
The vacuum tube has its origins in 1884 when Thomas Edison inserted a metal plate between two glowing filaments of a light bulb. Edison discovered that electrical current flowed from the positive side of the filament to the plate but not from the negative side of the filament.[2] Engaged with other things at the time, Edison did not follow up on the discovery[em]a very uncommon mistake by Edison.
In 1904, John Ambrose Fleming took advantage of what became known as the "Edison Effect" and created and patented the two-electrode vacuum tube, the first device invented to control the flow of electricity.[3] The discovery languished a bit over the next ten years; the technology improved, but problems still persisted. The vacuum tube was still expensive, unreliable, and not capable of significantly amplifying electrical signals.
Vacuum Tube Technology Development
In 1914, AT&T purchased the rights to the triode vacuum tube (invented in 1906 by Lee DeForest) for use in radio receivers and began to make significant technological improvements. During World War I, major improvements were made to vacuum tube technology, and production increased from approximately 20,000 tubes per year in 1917 to one million per year in 1919.[4] By the end of World War I, the only company capable of operating transatlantic radio and telegraph services was the Marconi Corporation of America, owned by the British Marconi Company.[5] Finding foreign ownership of such a vital capability unacceptable, the U.S. government urged General Electric to purchase the assets of the Marconi Corporation of America. On October 17, 1919, GE formed the Radio Corporation of America (RCA), and the former assets of the Marconi Corporation of America were acquired by RCA.
Following the buyout of the Marconi Corporation, the most significant producers of vacuum tubes included RCA, Western Electric, Sylvania, and Philips. In 1920, AT&T purchased a portion of RCA, and Westinghouse also purchased a position in RCA in 1921. Radio broadcasting emerged during the 1920s as the power and signal amplification of vacuum tubes began to reach the levels required for transmission of speech and music.
The Birth of Broadcast Programming
Companies such as RCA created broadcast stations as a means of increasing product sales. In 1929, there were 10.5 million radios in American homes and automobiles,4 and the age of radio entertainment was just beginning. As the result of a 1930 antitrust suit filed by the U.S. Justice Department, GE, AT&T, and Westinghouse were forced to divest their holdings in RCA. As a result, RCA was now faced with new competition from these former parent companies. In spite of this significant change in ownership and business structure, RCA experienced major growth from 1933 to 1937, as shown in Table 2, seeing a doubling in both gross income and net profit during that period.[6]
In 1938, there were approximately 41 million radios in American homes and automobiles. RCA also continued its research into television and made its first television broadcast in 1939. RCA's business potential, and the need for vacuum tubes, seemed very bright indeed.
A Disruptive Technology Emerges: The Transistor
The date was July 12, 1948, and the current issue of Time magazine contained a small, rather obscure announcement.[7] Bell Laboratories announced the development of a small device called a transistor. The transistor had actually been invented in 1947 by John Bardeen and Walter Brattain as part of a team led by William Shockley. According to the article, the transistor was designed to perform the functions of the vacuum tube. The vacuum tube had obtained the reputation of being hard to manufacture, bulky, fragile, and requiring a "warm-up" period. The transistor, on the other hand, was small, available to work immediately, and required no warming up.
Radio production and sales continued to increase, with 40 million radios produced in 1947. Television sales also continued to soar, with the sale of 67 million TV sets between 1939 and 1960.[8] In the 1960s, RCA management predicted that vacuum tube production would soon decline due to the emergence of the transistor.[9] Contrary to the prediction, RCA saw vacuum tube sales rising. The pleasure over this trend was short-lived. RCA management finally realized that the increase in vacuum tube sales was due to the exit of existing competitors from the vacuum tube business and the shifting of these sales in the short term to RCA.
The growth of the electronics industry was now fully under way, and RCA became heavily involved in the space exploration projects of the 1960s. Despite the significant growth being experienced by the electronics industry, RCA had shut down all of its vacuum tube manufacturing facilities by 1975.[10] The prediction of the decline of the vacuum tube had finally come true, and the disruptive transistor technology had taken its toll. Even though RCA became involved in semiconductor research and application development, it never became a leader in the semiconductor industry. Despite seeing the coming of a competitive threat and realizing the potential implications of this threat to its business, RCA was unable to maintain its leadership position in the emerging field of electronics. In June 1986, RCA was sold to GE for $6.4 billion. After 67 years as a pioneer and leader in the development of core electronics technology, RCA no longer existed.
The Lessons of the Vacuum Tube
So, why should you care about the story of RCA and the vacuum tube? After all, that's only the story of one product at one company. The fact is that of the 100 largest companies in existence in the year 1900, only 16 of those companies are still in existence today.[11] Further, of the 25 largest companies in 1900, only two of these companies are still among the top 25 companies.[12] Given these statistics, no company of any size is immune to the risk of losing its market, profitability, and even its entire business. The reality is that companies that do not proactively renew their portfolios of products are likely to find themselves being acquired or simply out of business.
Understanding Dynamic Markets: The Kano Model
The Kano Model,[13] shown in Figure 3, demonstrates the problem faced by companies as they look to sustain and grow their businesses. According to the Kano Model, there are three types of attributes in products: those that are "taken for granted" by customers, those that please the customer more as the level of the attribute in the product increases, and those that the customer does not expect but that "surprise and delight" the customer when the attribute is present.
One example of a "taken for granted" attribute is having a lamp provide light when a switch on the lamp is turned on. If the lamp provides light, there is no celebration, but if it does not light up the room, there is much anguish and concern. For an example of a "the more the better" attribute, let's consider computer processing speed. As a computer becomes faster at processing models or presentations, the more satisfied we become. Of course we expect the computer to provide at least some minimum level of processing speed. If the computer processor is below this minimum speed, adequate processing speed is an "expected" attribute that is not delivered. Finally, according to the Kano Model, some attributes are not expected by customers to be present in a product at all. In fact, often the customer is not even aware that these attributes could be incorporated into the product. If, however, these attributes are built into the product, the customer is "surprised and delighted" if these attributes provide some totally unexpected "wow" factor.
Implications of the Kano Model
An interesting example of a "surpriser and delighter" attribute came to light recently. A senior executive in a design class related a story of how he had rented a car and discovered that when it started to rain, much to his surprise, the windshield wipers automatically started operating at the right interval to wipe away the water from the windshield. The ability of the windshield wiper system to perform this function was certainly not expected, and the executive was quite delighted when it happened. In fact, he was so delighted by this feature that he insisted that the next car he purchased have this intelligent windshield wiper system! This brings us to the most important point in our discussion of the Kano Model: Product attributes that are "surprisers and delighters" to customers today become "expected" product attributes tomorrow. This constant change in customer requirements and expectations is the core reason why new product development is so critical. If we fail to continuously improve our product portfolio to meet changing customer expectations, we will eventually find ourselves left with a set of low margin, commoditized products.
An Economic View of the Product Life Cycle
A quick look at some supply–demand fundamentals shows us what happens as a product matures and enters the decline phase of the product life cycle. As we all know, according to basic economics, businesses face a supply and demand balance for their products in the market, as illustrated in Figure 4. As prices increase, suppliers are willing to produce more while the market demands less of the product. At some point, an equilibrium price is found at which customers are willing to buy the product and suppliers are willing to sell the product.
Figure 4. The supply–demand system
As products begin to mature, patent protections expire, technology advantages erode, and economy of scale advantages begin to disappear. With these changes, lower-priced substitute products begin to appear in the market. As these product substitutes enter the market, severe price pressure is placed on the business, as shown in Figure 5. The business is forced to either lower price to maintain market share or exit low-margin market areas in order to keep its overall average price at current levels.
Figure 5. The impact of low-priced substitutes
Companies do not only face competitive pressures from low-priced product substitutes; they also experience competition for the most profitable segments of their businesses. Most competitors tend to enter new markets by looking for the areas of highest profitability. In order to capture market share in these market areas, competitive products are designed with more "surpriser and delighter" attributes than the current incumbent products serving these customers. These new products often sell for similar prices as the original products but will frequently demand higher sales volume due to their improved product properties.
As shown in Figure 6, with competition from both low-priced product entrants and high-end specialty products, our markets are under constant competitive attack. Past success in a market does not guarantee that a company will continue to have future growth or even sustainability. Customers and markets are constantly asking, "What have you done for me lately?" Without a new product pipeline and a strategic plan for product portfolio renewal, an incumbent company risks losing market position, market share, and business profitability. The solution to this problem lies in maintaining a healthy, vibrant program for new product development and commercialization that brings ongoing value to customers.
The Role of DFSS
As discussed in the previous section, a company must have a successful product development program that brings value to customers in order to maintain market position and profitability. Unfortunately, all new product commercialization efforts are not successful—nor do they all bring value. According to the Product Development Management Association (PDMA), only 3 of every 11 ideas evaluated by a company enter development, and of those, only one succeeds.[14]
There are many reasons for the failure of new product commercialization efforts, including failure to understand customer needs, failure to understand emerging trends, and failure to use a structured process.
Understanding Customer Needs
Many companies fail to understand the real needs of customers. If a company does not understand what its customers need, how can it expect to develop products to effectively bring value to these customers? This lack of understanding of the Voice of the Customer is frequently a critical failing in companies that seek sustainability and growth.
Identifying Emerging Trends
Many companies fail to understand the emerging trends in the markets they serve. As demonstrated in the case of the vacuum tube product discussed earlier, markets undergo changes of many kinds. Sometimes a change is gradual, but at other times it is disruptive, as in the case of the transistor. According to Genrich Altshuller, the founder of the TRIZ (pronounced TREEZ) methodology, [15],[16] products evolve in a relatively consistent manner. Beginning in 1946, Altshuller surveyed over 400,000 patents and found that products change over time toward lower cost and easier-to-operate alternatives. Altshuller also found that products tend to evolve in ways that make them more flexible and easier to control. Does this description of product evolution apply to your products in the markets you serve? The answer is yes. To maintain a sharp competitive edge, a company should actively work to develop new products that will make its own existing products obsolete. While this may sound like a harsh approach, the reality is that if you don't develop these products, there is a very good chance that a competitor somewhere will.
Using a Structured Process
Many companies fail to use a structured, disciplined process for new product commercialization. When new market opportunities are identified, a structured process to allocate resources and monitor progress toward successful commercialization is essential. The Design for Six Sigma (DFSS) methodology, used with the Stage-Gate process recommended by Cooper,[17] is a powerful combination for companies to use in identifying new markets and developing products that serve customers in these markets.
The value of a structured commercialization process is seen in several areas. One key benefit lies in the commissioning of a cross-functional team, involving marketing, sales, technical development, and manufacturing, from the beginning of the project. This team works together throughout the entire product commercialization effort, thus ensuring project continuity and eliminating "handoffs" whereby miscommunication and inefficiency can occur. While the leadership role within the team can and should change during the commercialization effort, the continuity of the team as a working unit should be maintained.
Another key benefit of having a structured Design for Six Sigma process is the value in the identification, communication, and documentation of critical design parameters. The DFSS process is a self-documenting methodology that links the output of one tool to the input of the next tool. DFSS is not simply a set of tools to be executed in any order at the team's discretion. Instead, the DFSS methodology is a logical, sequential approach that provides a roadmap for successful product commercialization. While not every tool will always be used on every project, the DFSS roadmap provides a framework that allows the team and management to ask why a tool is not required for a given project. Having such a process to examine the existence and quality of key data is a critical success factor in reducing the risks involved in the development of new products. The use of the DFSS process will assist the company in reducing project execution cycle time, in minimizing project execution rework, and in utilizing key marketing and technical resources more efficiently. These benefits taken together should result in reducing the time required to bring new products to market and achieving a higher commercialization success rate.
Six Sigma Financial Metrics
Having examined the business case for DFSS, the next question is how to place a value on a Design for Six Sigma project. Assessing the financial value of a DFSS project is critical as we perform DFSS project selection. As mentioned earlier in this short cut, use of the DFSS methodology brings significant benefits by helping us improve our knowledge of customer needs, reducing product development rework, and minimizing waste as products are scaled up from technology to manufacturing. We now introduce a case study to demonstrate the value of DFSS in improving product commercialization efficiency and effectiveness. This case study is used throughout our forthcoming book, Commercializing Great Products with Design for Six Sigma (www.prenhallprofessional.com/title/0132385996), to demonstrate DFSS tools sequencing and application. The case is purely fictitious, so we need not worry about protecting confidential information. Using this approach, we can examine the details of how the DFSS methodology has been applied in the development of real products without needing massive editing and legal approvals. Let's get started!
Candy Wrapper Film: A DFSS Case Study
The Situation
You have been asked by your business management team to evaluate a potential business growth opportunity in the candy wrapper film (CWF) industry. Your firm, ACME Films, is one of the world's leading film producers and is the second largest supplier of candy wrapper films in the world. Candy wrapper films are a $250 million global industry.[*] The industry is currently very profitable, but global competitive pressures are beginning to shrink profits. ACME's annual earnings before interest, taxes, depreciation, and amortization for the last five years are as follows:
Business management is very concerned about the recent loss of sales volume and business profitability in its CWF market segment. They have asked you and your team to analyze the market, investigate options to improve business performance, and then develop a new CWF product to counter recent competitor CWF product introductions. Realizing the magnitude of the task and the importance of the project, management has asked you to utilize a Design for Six Sigma process to systematically guide your analysis, recommendations, and new product commercialization efforts.
The Concept
At present, your team has been given some information about a potential new product that management has been "kicking around" for a year or so. The product would sell for a targeted price of $0.52 per pound. Realizing that for a new product, sales price is uncertain, management has surveyed the sales organization and has established that the sales force is 95% certain that the price should be somewhere between $0.47 and $0.57 per pound. The primary property of interest to the customer for this product is wrapper strength. A special wrapper strength test has been developed, and marketing has assured management that a targeted tensile strength of 50 pounds per square inch (psi) is needed. Anything below 47 or above 53 psi would be totally unacceptable to the customer. A few preliminary pilot trials have indicated that the targeted strength of 50 psi can be reached, and these trials have provided a process standard deviation of 1.8 psi around that target.
The Forecasts
The total variable operating cost for production of the new product is projected to be $0.37 per pound, with a first-quality operating yield of 90%. It is believed that 100 million pounds of the new product will be sold starting next year and that the same sales level will continue for each of the subsequent nine years. After ten years, it is believed that the product will be obsolete in the market and that no sales will be made after that time. It is estimated that an initial capital investment of $20 million, including all technical resources and capital equipment, is required to bring the product to commercialization. The company currently has a cost of capital of 10% and a tax rate of 40%. Commercial sales of the product are to begin on January 1 of next year. Today is January 1, one year before the projected start of commercial sales. The technical and marketing teams believe the product can be ready for delivery to customers within the 12 months allotted for the project. Should we proceed? You make the call!
How to Measure Success in a DFSS Project
Where's the Money?
In measuring the success, or potential success, of a DFSS project, we must speak the language of business finance. When conducting a final project review to assess how well a project has gone, the CEO or other business leader will almost certainly not ask first about conversion rates or capacity throughputs, or even market share and sales volume. The first thing most business leaders will ask is, "Where's the money?" While the exact question may take the form of "What's the annual pre-tax income?" or "Could you tell me the project's NPV?," the actual meaning of whatever first question is asked is the same thing: "Where's the money?" To answer this question, we must be familiar enough with some basic financial concepts to speak the language of finance.
Another key point is that all successful DFSS teams will involve the finance function early and often in the development cycle. The reason for this is clear: When asking "Where's the money?," the business leader will not ultimately be looking at the R&D chemist or the account sales representative. The business leader will be looking at the finance group for confirmation of the project's value. The DFSS Blackbelt or Greenbelt should, however, become familiar enough with finance terminology and calculations so that project evaluation and scenario planning can be conducted without constantly requiring finance oversight. Once a development scenario is found that warrants further analysis, the finance function can be called in at the appropriate times to give additional support, analysis, and guidance.
Success Metrics
When measuring the success of a DFSS project, we will evaluate four fundamental financial values: after-tax profit (or annual net income), net present value assuming no risk, net present value considering risk, and internal rate of return. Other financial calculations, such as payback period and simple return on investment calculations, can also be considered, but these measures are not generally considered as powerful as the four financial metrics just mentioned, because they do not consider the time value of money.
After-Tax Profit
In beginning the financial analysis of our CWF case study, we first need to understand a simple but powerful formula. To begin our analysis, we calculate the project's after-tax profit (net income) for a year as:
Equation 1: Project After-Tax Profit
Examination of this formula yields a very interesting insight: no one function within the company has the organization's best knowledge of all of the key inputs for this formula. Generally, sales volume and sales price are best estimated by the marketing and sales groups. Production cost per pound and projected process yield can best be projected by technology and manufacturing. Tax rate is provided by the finance organization. The first very important point from this analysis is that estimating the financial value of a DFSS project requires a cross-functional team. The same holds true for project execution: A cross-functional team following the project from inception to closure is critical for commercialization success.
Applying the after-tax profit formula to our CWF project, we calculate the annual after-tax profit for the proposed product as:
Equation 2: Annual After-Tax Profit
Net Present Value
The CWF project, if commercialized successfully with the assumptions given, will produce an annual net income of $6.5 million per year. Not bad! But we have much additional work to do before we can get too excited about the project. For instance, there's the matter of a $20M capital investment up front. Will the project return more money for the company than it consumes? What's the role of interest charges on the money invested? To pull all of these factors together, we need to define a new financial term, the Net Present Value or NPV. NPV can be defined as:
Equation 3: Net Present Value Defined
where n is the number of years during which the project is expected to generate benefits. The cost of capital can be thought of as the interest rate charged for use of the money, just like borrowing money from a bank or venture capitalist. The NPV formula places more value on early cash flows than on cash flows received or expended later. NPV is thus a very important tool in our evaluation of project financial value, because it accounts for the time value of money.
For our proposed CWF product, the Net Present Value can be easily calculated as follows:
Equation 4: Project Net Present Value Calculation
The interpretation of the Net Present Value is very simple. If the NPV is positive, the value of our company will increase by the NPV value, in today's dollars, if we decide to do this project. If the NPV is negative, we are destroying company value by the amount of the negative NPV, also in today's dollars. As indicated above, our analysis shows a positive NPV of $20.1M. This is like saying that if we undertake this project and all the assumptions hold true, we will receive a check for $20.1M today. If you ask yourself the question, "Would you like to have a check for $20.1M today?" I'm sure it won't take long before you answer yes.
Internal Rate of Return
Another financial metric used by many companies is the Internal Rate of Return (IRR). The IRR is defined as the value of the cost of capital that would make the NPV value zero. Calculating the IRR is an iterative mathematical process that is best left to computers and calculators. The IRR for the new CWF product is 30.4%. This means that the interest charge for the money invested would have to be 30.4% in order for the project to be a breakeven proposition. Any lower cost of capital will result in a positive NPV, meaning that the project would add value to the company. A similar question as before helps us quickly put this in perspective: "Would you like to have a 30.4% return on your money at the bank?" Again, the answer is an obvious yes. Given the fact that thus far we have assumed the project has zero risk, which is certainly not the case, many companies will set a minimum IRR "hurdle rate" when evaluating project IRR values. Often this hurdle rate is in the 25% to 30% range, directly in line with the IRR for our current project.
Quantifying Project Risk
Our analysis thus far has indicated that the CWF project deserves additional work, but as yet we have not considered project risk. What can go wrong in the commercialization of a new product? Can we quantify these risks in financial terms? We now consider several key areas of risk in the development of our CWF product and estimate the financial impact on the project if these risks actually occur.
Cost of Commercialization Delays
Based on our analysis, management considers an NPV of $20.1M and an IRR of 30.4% to be acceptable returns and has asked that the team move forward with product commercialization. Having begun work in earnest, the technical team has determined—six months before bringing the new product to market—that the project is three months behind schedule and that sales of the new product cannot begin before April 1 of next year. Does this delay impact the financial value of the new product? Can we quantify the impact? The answer to both questions is yes.
First, let's consider what the delay really means. As just mentioned, initial sales of the new product will be delayed by three months. Does this mean that our customers, who are really nice people, will purchase an additional three months of the product at the end of its product life cycle in order to make up our loss? No, the product life cycle is determined by competitive forces, not by the quota of sales volume we need in order to make our financial commitments. Instead, the entire project will be penalized by the loss of three months of sales in the first year. To calculate the impact, let's revisit the NPV calculation. As we saw, the original NPV of the project was calculated as:
Now, instead of receiving $6.5M in year 1, we will only receive 9/12 of $6.5M or $4.9M. The impact on the project's NPV can be calculated as:
Equation 5: Net Present Value with Project Delay
The cost of delaying the commercialization of the product by three months is $20.1M – $18.7M or $1.4M! Incredibly, a simple three-month delay costs us $1.4M of the project's value. The delay also impacts the IRR, reducing it from 30.4% to 28.1%. While these financial impacts are significant, the true impact may be far greater. A three month delay in bringing a product to market may result in missing a key market window such as a model year introduction in the auto industry. In this case, a delay may even make the product obsolete before it has ever been launched.
The Cost of Not Killing a Poor Project
After seeing the potential financial impact of the three-month delay, the project team aggressively reviewed the schedule and was able to bring the project back to its original product launch date of January 1. With the need to spend $20M of capital in order to bring the product to market within the allotted 12-month period, the team has earnestly begun work to commercialize the product. Now, six months into the 12-month project execution schedule, the technical and marketing members of the team have identified what they consider a fatal flaw in the product. Upon review with the remainder of the team, the flaw seems insurmountable. Hearing of the flaw, management has directed the team to immediately cease all activity. Is there a cost of stopping a project in the middle of the execution cycle? Can we quantify these costs? Again, the answer is yes.
One of the biggest problems in the commercialization processes of most companies is the inability to kill projects. A second, related failure is the inability to prioritize resources to work only on the company's highest-priority projects. These two failure modes are directly linked. If a company fails to quickly recognize and kill projects that are doomed to failure, these projects continue to consume valuable resources and ultimately return no value. Failure to kill projects "clogs" the commercialization system, consuming vital resources that should be applied to projects that can succeed and bring value to the company. Later in this book we discuss ways to assess the probability of success for projects as they proceed through our commercialization process. For now, let's assess the cost of killing a project too late.
For the CWF project, we have discovered a fatal flaw in our product six months into the commercialization process. With a required capital expenditure of $20M, the project execution team was well on the way to spending a significant amount of capital. Capital projects typically follow what is known as a spending "S-curve." The S-curve for our CWF project is shown in Figure 7. Having worked on the project for six months, at the point the team was told to stop execution, $12M of capital had already been spent. Given the nature of the S-curve, had the decision to kill the project been made after only two months of work, only $2M of capital would have been spent. Surely, $2M is a lot of money, but it is obviously much less than $12M.
Figure 7. Product development cost
For this project, we can put a direct value of $10M on the cost of a delayed kill decision. Other projects will of course be different in the rate and amount of capital spending, but the principle is the same. The cost of delay in killing projects that will ultimately not succeed is very substantial. The DFSS methodology is designed to provide us with data that management and the commercialization team can use to identify warning signs for projects with low probabilities of success. In the case of the CWF project, the potential cost savings of $10M for an early kill are again understated. Other costs that result from this type of failure include loss of credibility with customers, loss of credibility with the financial investment community, and of course, lost opportunity to work on other projects that would be successful. The inability to identify and kill projects destined for failure early in the commercialization process is a major failure in most companies today.
The Cost of Poor Quality
After further investigation, the marketing and technical groups were able to resolve the potential fatal flaw with the new CWF product. As the commercialization effort for the product has continued, management has become concerned with the projected Cost of Poor Quality (COPQ) for the product. As a result, you and your team have been asked to conduct an analysis of this cost and to review it with management as soon as possible.
As we begin this new assignment, we have one piece of critical information from the prior work that was done on this project. We know from that work that the projected yield for the product is 90%. Therefore, we of course know that 10% of the production is projected to be waste. For the purposes of this case study, we assume that this waste material cannot be upgraded through reprocessing and is therefore not sellable. We also assume that the waste material has no disposal cost, which is normally not the case in real life.
Defining Entitlement
At this point we introduce the concept of entitlement. For a Six Sigma project, the concept of entitlement is very important. Entitlement can be defined as the best possible theoretical performance for a process. In bowling, entitlement is 300, a perfect game. In baseball, entitlement is pitching a perfect game where no one reaches base and the minimum number of batters (27) come to bat. Golf is a little harder. It could be argued that entitlement in golf is 18—one shot per hole. But now we come to the question of whether the result is theoretically possible. Needing only one shot on a short par 3 hole may be feasible (for some people) but requiring only one shot on a long par 5 hole seems to stretch the imagination. So we introduce an addition to the definition of entitlement for these cases—the best ever-demonstrated performance. In this case, we might consider the best score ever reported (and verified) in a game of golf as entitlement. Many would consider this value to be approximately 59, far above the score of 18 we considered earlier. For our CWF product, the question of the entitlement for yield is pretty easy. The best possible theoretical yield for our product is 100%.
The Baseline and Goal
Two additional terms are now introduced: baseline and goal. Simply stated, baseline is the current value at which our process is operating. Once baseline and entitlement have been established, the goal for the project can be determined. As shown in Figure 8, the goal is determined by business management and the Six Sigma team in such a way as to significantly close the gap between baseline and entitlement.
Figure 8. Establishing entitlement
Goal Setting
Traditional goal setting typically results in goals that are not aggressive, because the concept of entitlement is not considered. With knowledge of the possibilities in mind—the entitlement—teams are generally more aggressive and achieve bigger breakthrough results when using the Six Sigma approach for establishing goals. For our current project, we know that entitlement product yield is 100%. We also know that the baseline yield for our product is expected to be 90%, based on prior work that has been done with this product. With this information, we can now calculate the expected COPQ for the new CWF product given our current assumptions. We know already that the NPV for the product with a 90% yield is expected to be $20.1M. We can now also calculate the entitlement NPV for the project. First we calculate the entitlement after-tax profit with 100% yield, as shown in Equation 6.
Incredibly, if we were able to achieve 100% yield from our new process, we would improve our after-tax profit from $6.5M per year to $9.0M per year.
With this information, the entitlement NPV can now be calculated, as shown in Equation 7. The entitlement NPV for our project at 100% yield is $35.3M. Given our newly calculated entitlement NPV, we can now answer management's question. The COPQ for the CWF process is ($35.3M – $20.1M) or $15.2M. The entitlement IRR can be calculated as 43.8%. Thus, the current process with a 10% yield loss is costing us (43.8%–30.4%) or 13.4% on our Internal Rate of Return.
No doubt this analysis has shown us that there is major value in improving the process yield for the proposed CWF product before final product introduction. With our currently projected NPV of $20.1M, given that all assumptions are met, the project continues to be of great interest. Our next goal should be to bring the project to final commercialization with a yield much closer to entitlement, generating even greater value for the company.
Calculating the Sigma Level of the Process
Having calculated and reported the COPQ of the current process to management, the team has now been asked to determine the "sigma level" of the process. Management has heard that for the type of process being developed, a sigma level of 6 is considered to be world-class. Knowing that sigma level is defined as the number of process standard deviations between the operating point of a process and the closest specification limit, the team decides to calculate a best-case sigma level, as shown in Figure 9, by assuming that the new process will run exactly at the target of 50 psi.
The target point of 50 psi for this example is located exactly halfway between the Upper Specification Limit (USL) of 53 and the Lower Specification Limit (LSL) of 47. There is no requirement that the target value for a process be centered exactly halfway between the specification limits or that the process operates at target. In fact, in our later discussion of process capability we see that we can easily evaluate processes that do not meet either of these two assumptions. Finally, the team realizes the need for an estimate of process standard deviation around the operating point. Remembering that last year a few pilot plant trials were run, the team found a standard deviation projection from those studies of 1.8 psi for the new process.
The formula for calculating the sigma level of a process is given in Equation 8. Much more about sigma level and process capability appears in Chapter 28 of our forthcoming book, Commercializing Great Products with Design for Six Sigma. (2007; www.prenhallprofessional.com/title/0132385996).
Using this equation, we can calculate the sigma level of the proposed process as follows.
As shown in Figure 10, a 1.67 sigma level process is not good; after all, this process is not called "Design for 1.67 Sigma"! In fact, even though a 6 sigma process is typically thought of as entitlement, most well-running industrial processes strive for a sigma level of at least 4. The real impact of a poor sigma level was seen earlier in the cost of poor quality estimation. There's no doubt that the process we are considering needs a significant amount of additional work.
Figure 10. Calculating process sigma level
The Cost of Tightened Specifications
It's been a long hard day of working on the project, and the team continues to feel that the project has significant potential value for the company. Just as you're about to walk out the door at the end of the day, the telephone rings. Realizing that you may regret picking up such a late call, you answer it anyway. On the phone is your friend, the marketing representative on your team. It seems that he has been visiting the customer today and that he has good news—the customer still wants the product! There is only one caveat; during the customer discussions, the marketing representative discovered that the "real" customer need was for a lower wrapper strength specification of 48 and an upper spec of 52. The desired target value continues to be 50.
Certain that the technical team will have no problem achieving these small specification changes, the marketing representative told the customer that the spec change would be "no problem." Thanking you for your outstanding leadership of the commercialization effort, the marketing representative wishes you a good evening and invites you to have lunch next week as a token of his appreciation for all of your hard work. Is this a big problem or only a small change for the project? Can we place a financial value on the proposed specification changes given our knowledge of the current process? Let's continue our analysis.
The situation we now face is represented in Figure 11. Both the lower specification limit (LSL) and the upper specification limit (USL) have moved closer to the current operating point by one psi. Assuming that the distribution around the operating point of 50 is a normal distribution, we find that with the new specifications the process now has a total of 26.6% waste instead of the 10% waste we had previously.
Figure 11. The impact of tightened specification limits
The financial impact of the tightened specification limits can now be calculated in the same way as before. The new annual after-tax profit is expected to be
and the new NPV will be
The impact of the small tightening of specifications by the customer has been dramatic. Our after-tax profit has fallen by ($6.53 – $0.95) or $5.58M. The net present value for the project has also been greatly impacted, falling from $20.1M to –$14.1M, a project value loss of $34.2 M! If we proceed with the project using these new specification limits, then instead of increasing the company value by $20.1M we will instead be destroying $14.1M of company value. As you might expect, the IRR has also suffered greatly, falling from 30.4% to –11.6%. Many new product commercialization efforts fail because customers are not involved in the effort early. We spend much time in this book dealing with specific tools used in the DFSS process to gather and analyze the Voice of the Customer. In this case, not having the Voice of the Customer early may cost us $34.2M in project value. If the new specifications are real, we would have probably killed the project early in the project evaluation stage. Without question, gathering the customer's voice and needs early is far cheaper than hearing their voice (complaints) when the first product is shipped.
The Cost of Long Term Variation
To make sure that he had correctly identified the customer's need, the marketing representative scheduled another discussion with the customer. When reviewing the need for the tightened specifications, the customer said that the tightened specs were not really important. The request was intended as only a side comment and was not essential for the new CWF product under development. Very apologetically, the marketing representative informed the team that the original specifications of 47 and 53 were again the project goals. As a result, the team has now turned its attention to developing the process itself. Some team members are uncomfortable with the limited amount of effort put into the prior technical work. The initial project financial value was based on a 1.8 psi process standard deviation, resulting in a 90% process yield. With this information, management approved additional project work in order to capture the $20.1M project net present value. Unfortunately, after further investigation, the technical basis for the 1.8 psi standard deviation was found to be very short-term process trials. The team has now decided to estimate the financial impact of using short-term process technical data for commercialization of the new CWF product.
While not exact for all processes, a general rule of thumb is that, over the long term, processes tend to shift by 1.5 standard deviations. Applying this rule of thumb to our CWF process, we can estimate the process waste over the long term. As shown in Figure 12, it is estimated that over the long term, 43.5% of the material produced will fall outside of the specification limits.
Figure 12. The impact of long term variation
With this estimate of waste over the long term, we can calculate the after-tax profit and net present value for our project over the long term.
The after-tax profit in this scenario is now –$8.1M. Note that the situation would be even worse at –$13.5M were it not for a tax credit that reduces the loss! The NPV of –$69.7M for the long-term shift scenario indicates that this situation would be a major financial disaster and must be avoided. This "worst case" financial penalty is associated with the translation of a process from R&D to manufacturing without testing to assess the long-term standard deviation of the process. No doubt the project team will need to reduce the short-term variation of the process as well as improve control of the process over the long term.
Financial Sensitivity Analysis
Having identified the importance of monitoring and controlling variation, we can now perform a financial sensitivity analysis for our CWF product. How low must we drive the short-term variation of the process in order to satisfy the financial objectives for our project? Using our equations for after-tax profit, NPV, and IRR, we can calculate the impact of short-term process variation on the financial results, as shown in Table 3. We now see that we must lower the standard deviation of short-term process variation to 0.5 psi in order to design a Six Sigma process, far below our current short-term standard deviation estimate of 1.8 psi. A Six Sigma process produces only 3.4 parts per million of waste and closely approximates our prior calculations for entitlement NPV of $35.3M and IRR of 43.8%.
Table 3. Financial Results versus Process Sigma
Defining the Right Sigma Level
As shown in Table 4, we can characterize the performance of processes with different sigma levels based on the proportion of defects each of these processes produces. The appropriate sigma level for a process is really a function of the implications of a defect and the cost required to eliminate the defect. In heart surgery, defects should be driven to extremely low levels due to their potentially fatal consequences. The requirement to achieve this level of process performance often requires significant investment for existing processes. Because not all processes require the same level of performance, achieving Six Sigma performance is often financially infeasible for many existing processes. This brings us to a key point: Designing a process to be a Six Sigma performer from the start is far easier and more economically feasible than trying to improve it to that level of performance later.
Table 4. Sigma Level and Process Performance
Single Factor Financial Sensitivity
Finally, the financial performance of a Design for Six Sigma project is not only influenced by technology. As described earlier, the after-tax profit from a project is also influenced by sales price, sales volume, and production cost. As shown in Figure 13 and Figure 14, as the short-term (ST) sigma level reflecting the yield of our process reaches 4.5, the impact of continuing technical work to improve the yield produces very little improvement in NPV and IRR. Continued work to drive to Six Sigma levels is still of interest in order to minimize the impact of long-term variation, but in the short term we can see that project value can easily be lost by mistakes in forecasting sales price, sales volume, and production cost. In Figure 13, we see that a change of $0.05 in our sales price has the effect of changing our NPV by $18M. In this case, technology has done everything possible to successfully commercialize the product, but marketing must also deliver on its commitments in order for the project to be successful.
Figure 13. Financial sensitivity to sales price: NPV
Figure 14. Financial sensitivity to sales price: IRR
Similarly, in Figure 15 we see that purchasing must meet the pricing requirement for the raw material and that failure to do so will have a dramatic impact on NPV. We see in Figure 16 that marketing and sales must also reach their sales volume goals in order for the project to reach its original financial objective. To minimize the risk of our project failing in either of these key areas of marketing and procurement, we rely on the business and marketing tools in our DFSS roadmap. Key information in these areas will be produced from Voice of the Customer interviews and value chain analysis in order to improve our project success rate.
Figure 15. Sensitivity of NPV to cost and price
Figure 16. Sensitivity of NPV to volume and price
Monte Carlo Simulation in Financial Sensitivity Analysis
No doubt analyzing the business risk one factor at a time has been useful, but it does not give us the entire financial risk profile for our new project. A much more informative approach is the use of Monte Carlo simulation. In Monte Carlo simulation, certain statistical assumptions are made, and a model is built using these assumptions. For our project, we have defined assumptions for the key variables in our NPV calculation in Table 5. These data were then put into an Excel spreadsheet model and a Monte Carlo simulation was run using Crystal Ball, an Excel program add-in. The results of the Monte Carlo simulation analysis are shown in Figure 17. We see from the simulation results that, instead of our initial estimate for NPV of $20.1M, we would instead expect our project to produce an NPV of approximately $17M. We also see that there is approximately a 5% risk of having a negative project NPV. If the results of this model present an unacceptable risk for us, we have the option of working to reduce variation and improving expected value for the components of the NPV calculation. With this approach we can identify, quantify, and manage the components of risk for our CWF project.
Figure 17. Overall financial risk analysis
Table 5. Monte Carlo Simulation Assumptions
What's in the Book Commercializing Great Products with Design for Six Sigma?
Commercializing Great Products with Design for Six Sigma (http://www.prenhallprofessional.com/title/0132385996) is a unique book that demonstrates the business value of DFSS in today's highly competitive business environment. Any business that strives for greatness must offer its customers a portfolio of great products. Successful development and commercialization of new products is required of all companies—not only for their growth, but for their mere survival. Because all products are subject to a product life cycle, companies not continuously updating product lines to meet the changing needs of key markets are faced with stagnation, diminished profits, and bankruptcy.
- Commercializing Great Products with Design for Six Sigma is a complete look at the steps companies must follow in order to successfully bring new products to market. The book answers the following three fundamental questions:
- Why should I use Design for Six Sigma (DFSS) in new product commercialization?
- What steps and tools are required to commercialize products with DFSS and in what sequence should they be executed?
How do I properly use the DFSS tools required to develop and bring new products to market?
Using the tools of DFSS, the book presents step-by-step instructions for business case development, market analysis, product concept development, product design, manufacturing scale-up, and product launch. This book will help business managers and design teams to identify the product concepts that are important to their customers and to efficiently translate those concepts into high-impact sources of new income. Along with a step-by-step discussion of key DFSS tools and roadmaps, the book contains a detailed case study example that illustrates tool execution and linkages. Supplementary materials accompanying the book include tool application examples in a complete Excel-based commercialization case study and data sets used to perform statistical analysis in Minitab and Crystal Ball.
Why We Wrote This Book
Having worked in industry developing new products for many years, we passionately believe that companies must stay on the cutting edge of product design in order to remain competitive in today's global business environment. We wrote this book not only to inspire senior business leaders, marketing staff, and technical staff to expect great results from their new product development programs, but also to demonstrate how these results can be achieved. Through a detailed case study example, we demonstrate to leaders and practitioners alike how to apply the principles of DFSS in the identification and development of new products and services. In the text, we give step-by-step instructions along with easy-to-use templates and examples for the uses of required tools. We discuss and demonstrate the use of each tool in sequence, as shown in the DFSS commercialization roadmap presented in the book.
In Commercializing Great Products with Design for Six Sigma, we provide a practical, "how to" guide for the use of DFSS in product commercialization. The product development techniques and roadmaps presented in this book have evolved throughout our combined 65 years of experience in product commercialization. Many of the fundamental concepts presented were learned, developed, and enhanced during the courses of our individual careers. Randy Perry has worked in product commercialization for 25 years, including 18 years at AlliedSignal (now Honeywell), where, under the leadership of CEO Larry Bossidy, Six Sigma became a weapon to drive growth and productivity improvement. David Bacon, inspired as a graduate student by his former research supervisor George Box, has more than 40 years of experience as an engineering professor and industrial consultant. The tools and roadmaps described in this book continue to be expanded, refined, and improved through work with a diverse array of corporate clients and fellow consultants.
An Overview of the Content
Commercializing Great Products with Design for Six Sigma consists of five sections: (1) Getting Started, (2) Preparing the Business Plan, (3) The Voice of the Customer, (4) Product/Process Development, and (5) Product/Process Launch. Within these sections, the book contains 38 chapters and follows the development of a new product or service from business concept through final product launch. This section provides a brief description of each section and the chapters within it.
Section 1: Getting Started
Section Overview
In this section, we begin by summarizing the history of Six Sigma and of Design for Six Sigma before quickly moving into a discussion of key business infrastructure needed to support a successful commercialization program.
The section begins with a brief overview of how companies, markets, and products are constantly changing, and how these forces of change drive the need for new products. After a detailed discussion of how financial metrics are used to measure the value of DFSS, the first section concludes with a discussion of how to select new projects and manage the company's new-product portfolio.
Chapter Overview
In Chapter 1, we begin with the overview, "What Is Design for Six Sigma?" In this chapter, we trace the history of Six Sigma and discuss various DFSS roadmaps in use for product commercialization today.
In Chapter 2, "The Business Case for DFSS," we discuss why business management should aggressively work to implement DFSS in the company's new product development processes. In this chapter, we demonstrate and discuss the devastating consequences of failing to continually replenish company's pipeline of new products.
In Chapter 3, "Six Sigma Financial Metrics," we present a detailed look at how to place a value on Design for Six Sigma projects. Assessing the financial value of DFSS projects is critical as we track the benefits realized by improving our knowledge of customer needs and reducing product development rework. In this chapter, we introduce the Candy Wrapper Film Case Study, which is used throughout the remainder of the book to illustrate precisely how and when required DFSS tools are to be executed.
In Chapter 4, "Project Identification and Portfolio Management," we discuss the critical need for a dynamic project selection process. The commercialization pipeline of new products represents a company's future. Careful tracking and management of this product portfolio using the methods discussed in this chapter are essential.
In Chapter 5, "Stage-Gate Processes," we discuss the general concept behind the use of Stage-Gate in product commercialization. The benefits of using Stage-Gate to minimize the risk of using people, time, and money inefficiently on projects are examined.
In Chapter 6, "Project Management," we discuss the need for project management discipline to complete the Stage-Gate deliverables. A review of good project management techniques is presented.
Section 2: Preparing the Business Plan
Section Overview
In Section 2, we deal with the preparation of a business plan for a new product. We discuss various key components of a business plan in detail, including performing market segmentation, identifying market opportunities, defining product value, and estimating the financial value of a project. We end this section with a discussion of how to best position a new product for success in the marketplace.
Chapter Overview
In Chapter 7, "Business Plan Overview," the concept of developing a business plan to describe the business, marketing, and operating strategy for a new product is introduced. The contents of a good business plan are presented and reviewed.
In Chapter 8, "Market Segmentation," the value of strategically grouping customers having similar characteristics and needs with the goal of improving overall business profitability is discussed. Methods and techniques for segmenting markets are presented.
In Chapter 9, "Identifying Market Opportunities," two specific tools for examining new market opportunities—the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis and the Market Failure Modes and Effects analysis (FMEA)—are discussed. Specific instructions and an example for execution of each of these tools are presented.
In Chapter 10, "Defining Product Value," the concept of customer value is introduced. In this chapter, we discuss how customers buy products based on value, not based on price. A discussion of value chain mapping techniques and how this information can be used in making strategic decisions is presented.
In Chapter 11, "Estimating Financial Value," methods to estimate the financial value for a product under development are discussed. Financial Excel models are constructed and sensitivity analyses using Crystal Ball are conducted.
In Chapter 12, "Product Positioning," two primary tools for product positioning are discussed—the Market Perceived Quality Profile and the Product Positioning Map. The purpose of these tools is to establish what major product and service attributes most influence a customer's decision to purchase products and then to define how our current products are positioned compared to those of competitors in these key requirement areas.
Section 3: The Voice of the Customer
Section Overview
In Section 3, we provide an in-depth discussion of how to gather and analyze "The Voice of the Customer." In this section, we emphasize techniques to identify the business-critical needs of key customers, and then we explore the use of interview techniques that allow us to examine these needs more deeply. We continue our discussion in Section 3 with a detailed look at the use of KJ Analysis to determine which needs identified during customer interviews are most important. Later in the section, we examine new product ideation and concept generation/selection techniques. We end Section 3 with a detailed discussion of Quality Function Deployment (QFD) and how this key tool is used to develop key product and process specifications.
Chapter Overview
In Chapter 13, "Concept Development," we discuss a series of specific tools tied together in a roadmap format with the intent of developing the best product to meet the needs of a given market. Concept development is a unique approach to product or service development and provides a structured methodology for dealing with the "fuzzy front end" of product development.
In Chapter 14, "Developing the Interview Guide," we discuss a well-defined process for developing an interview guide to be used in interviewing customers.
In Chapter 15, "Conducting Customer Interviews," specific techniques are presented for interviewing customers and collecting needed Voice of the Customer information.
In Chapter 16, "KJ Analysis," we discuss the KJ process for analyzing Voice of the Customer interview results in order to capture the most important customer requirements for our new product or process.
In Chapter 17, "Relative Importance Survey," we review the importance of a follow-up customer survey to confirm or modify the importance ratings of customer requirements resulting from the KJ Analysis. Specific examples of surveys and survey analysis techniques are presented.
In Chapter 18, "Ideation," a method for developing innovative product solution ideas is discussed and demonstrated using the Candy Wrapper Film Case Study.
In Chapter 19, "Pugh Concept Selection," the Pugh Concept method for selecting the best overall product concept is presented. A detailed example of how the Pugh method is executed is discussed.
In Chapter 20, "QFD," the Quality Function Deployment (QFD) tool is reviewed in detail. Specific execution details for QFD are presented and the flowdown nature of QFD is demonstrated.
In Chapter 21, "TRIZ," the use of the TRIZ (pronounced "TREEZ") methodology—developed by the Russian engineer and scientist Genrich Altshuller to resolve significant technical conflicts identified in the QFD roof—is discussed.
In Chapter 22, "Critical Parameter Management," the development and use of critical parameter scorecards to ensure that critical parameters identified through the QFD process meet process capability requirements are presented.
Section 4: Product/Process Development
Section Overview
Section 4 covers the fundamental technical tools needed for product and process development. This section begins with a discussion of Process Mapping and continues with detailed examination of the use of the Cause and Effects Matrix, Failure Modes and Effects Analysis, basic statistical tools, measurement systems analysis, process capability, tools for data analysis, design of experiments, robust design, mixture experiments, and multiple response optimization. The section ends with a review of how to scale up a process from pilot scale to full-scale production with a well-defined control plan.
Chapter Overview
In Chapter 23, "Process Mapping," we demonstrate the techniques required to develop good process maps. We also demonstrate how process mapping interfaces with the QFD analysis.
In Chapter 24, "Cause and Effects Matrix," the tools and techniques for development of the C&E Matrix are presented. In this chapter, we show how the C&E Matrix links to the QFD process.
In Chapter 25, "Failure Modes and Effects Analysis," we discuss the process for identifying critical failure modes and their causes for both process design and manufacturing.
In Chapter 26, "Statistical Analysis Tools Overview," we explore key fundamental statistical analysis techniques. Graphical and numerical analysis approaches using detailed Minitab instructions and output are presented.
In Chapter 27, "Measurement Systems Analysis," we discuss the importance of good measurement systems in product development. In this chapter, we present step-by-step instructions and examples of how assessments of measurement systems are conducted using Minitab.
In Chapter 28, "Process Capability," we discuss methods for determining how well product or process performance satisfies specifications. We present commonly used formulas for process capability and demonstrate how process capability analysis is conducted using Minitab.
In Chapter 29, "Tools for Data Analysis," we demonstrate in detail techniques for identifying underlying relationships in data. Using Minitab and the Candy Wrapper Film Case Study, detailed instructions are given for a variety of statistical analysis techniques, including t tests, ANOVA, correlation, regression, and nonparametric statistical analysis. Discussions of confidence intervals, sample size calculation, and control charting are also presented.
In Chapter 30, "Design of Experiments," we discuss techniques for conducting commonly used designed experiments. Full Factorial, Fractional Factorial, and Response Surface designs are discussed in detail.
In Chapter 31, "Robust Design," we discuss concepts and methods for designing a product or process to resist the impact of noise. Specific robust design approaches and examples are presented.
In Chapter 32, "Mixture Experiments," we discuss the use of experimental design techniques to determine the optimum formulation for a product that contains multiple components.
In Chapter 33, "Seeking an Optimal Solution," approaches are presented for simultaneously optimizing multiple performance characteristics in product development. Techniques using Minitab®, Excel, and Crystal Ball are demonstrated using the Candy Wrapper Film Case Study.
In Chapter 34, "Design for Reliability (DfR)," we discuss techniques to test, analyze, and improve product reliability.
In Chapter 35, "Statistical Tolerancing," we discuss methods to ensure that multiple components in an assembly or composite product are designed to meet assembled product specifications.
In Chapter 36, "Production Scale-Up," we discuss techniques to ensure that a product meets Design for Manufacturability requirements.
In Chapter 37, "Control Plans," we discuss the process for developing procedures to ensure that optimum product or process performance will be sustained as we move forward.
Section 5: Product Launch and Project Post-Mortem Analysis
Section Overview
The book ends with Section 5, in which several tools are described for execution after Product/Process Launch is completed. In this section, we discuss the generation of a post-launch follow-up report with key customers to ensure that the new product meets their requirements, and the need for a review of production yields compared to project targets. We conclude with a review of the post-mortem analysis process to capture improvement opportunities for future new product development projects.
Chapter Overview
In Chapter 38, "Product Launch and Project Post-Mortem Analysis," we review the need to track the launch of a product in order to ensure successful commercialization with targeted customers. We also demonstrate techniques for conducting post-mortem project follow-up to ensure that project learnings are captured for use in future projects.
Summary
In summary, Commercializing Great Products with Design for Six Sigma contains a broad spectrum of valuable insights for improving the product commercialization process. The book is intended to
- Appeal to business management by providing a discussion of the business value of DFSS
- Address both marketing and technology activities in an integrated DFSS roadmap
- Provide a detailed step-by-step discussion of how to use each key DFSS tool
- Demonstrate tool usage with a complete case study utilized throughout the book
- Provide an easy-to-use DFSS tool template in Excel format for each key tool
By applying the methods presented in this book and illustrated by the case study examples, significant improvement in a company's product development process can be quickly achieved.
Case Study
Commercializing Great Products with Design for Six Sigma demonstrates the product development process through the use of a detailed step-by-step case study. The case study begins with the identification of a new Candy Wrapper Film product idea. The case study is then used to illustrate detailed instructions for assessing the business opportunity, gathering the Voice of the Customer, and technically designing and manufacturing the product. The case study contains over 100 easy-to-use design templates and analysis files that can be modified for use in the development of any product.