DFR ROI: Calculating ROI When Implementing a DFR Program

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2 PRESENTATION ON DFR ROI: Calculating ROI When Implementing a DFR Program BY Mike Silverman, CRE, Ops A La Carte LLC

3 Agenda Background/Introduction Reliability Program Assessment DFR ROI Calculator Example Summary 5 min 15 min 15 min 10 min 5 min Questions 10 min

4 Introduction Ops A La Carte Founded in 2001 Named top 10 fastest growing, privately-held companies in the Silicon Valley in 2006 and 2009 by the San Jose Business Journal. Over 1500 projects completed in 11 years Over 500 Customers in over 30 countries Over 100 different industries, 6 main verticals CleanTech, MedTech, Telecom, Defense, Oil/Gas, Consumer We run FREE monthly webinars.

5 Upcoming Events we are at Accelerated Stress Test and Reliability (ASTR) Workshop Oct 17-19, 2012, Toronto Ops A La Carte's Mike Silverman will be giving a tutorial on 30 Years of HALT What Have We Learned". Medical Device/Mfg Conference (MD&M) Oct 31 - Nov 2, Minneapolis Ops A La Carte's Mike Silverman will be giving a day tutorial on Medical Reliability Testing.

6 Other Reliability Events Certified Quality Engineer Preparation Class Date(s): Oct 16 to Nov 27, 2012 Time: 6pm-10pm one night a week, 7 weeks Location: San Jose, CA and Webinar We have been teaching this class for 9 years and our pass rate is 50% higher than for those that did not take our prep class.

7 Upcoming Reliability Webinars Advances in HALT Calculator - New MTBF and ROI Calculator Date: Oct 3, 2012, 11:30am Location: Webinar This is our next webinar in our free webinar series See link from our website Since we introduced our HALT Calculator 3 years ago, we have made some important improvements 1) Calculator now resides on the cloud 2) We have developed methods for using calculator as input to HALT plan 3) We have added an ROI Calculator 4) We have added an MTBF estimator 5) We have added several new factors, including duty cycle and variable confidence intervals All of these will be explained and demonstrated in this 1 hour webinar

8 PRESENTATION ON DFR ROI: Calculating ROI When Implementing a DFR Program BY Mike Silverman, CRE, Ops A La Carte LLC

9 Background Last year we presented a paper on Design for Reliability (DFR), reviewing the benefits of a good DFR program and included some of the essential building blocks of DfR along with pointing out some erroneous practices that people today are using today.

10 Background (cont d) We discussed a good DFR Program having the following attributes: Setting Goals at the beginning of the program and then developing a plan to meet the goals. Having the reliability goals being driven by the design team with the reliability team acting as mentors. Providing metrics so that you have checkpoints on where you are against your goals. Writing a Reliability Plan (not only a test plan) to drive your program.

11 Background (cont d) A Good DFR Program must choose the best tools from each area of the product life cycle Identify Design Analyze Verify Validate Monitor and Control The DFR Program must then integrate the tools together effectively

12 Introduction Today we will discuss a method we have developed to calculate the Return on Investment (ROI) from a Design for Reliability (DFR) program, also known as the DFR ROI. The DFR ROI is the cornerstone of our new Ounce of Prevention Solution This is the OPS in Ops A La Carte!

13 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

14 Calculating Improvement in Warranty To calculate your Improved Warranty Rate, you will need to determine both your current Reliability Maturity Level as well as your desired Reliability Maturity Level. To determine these, you will need to conduct a Reliability Program Assessment (RPA).

15 RELIABILITY PROGRAM ASSESSMENT

16 Reliability Program Assessment

17 Assessment Motivation Identify systemic changes that impact reliability Tie into culture and product Both enjoy benefits Provides roadmap for activities that achieve results Matching of capabilities and expectations Cooperative approach Save Money (ROI)

18 When to perform an Assessment? Entering into a new market Product reliability is below target level New personnel New technology Product design > 50% different than previous.

19 Steps Involved in an Assessment Selecting People to Survey Selecting Survey Topics (from IEEE1624) Develop a Scoring System Results and Meaning Data Analysis/Reliability Maturity Matrix (our new Matrix is aligned with IEEE1624)

20 Selecting People to Survey Hardware Engineers Software Engineers Test Engineers Manufacturing Engineers Quality/Reliability Engineers Program Management Procurement others?

21 Survey Topics 1. Do you have a Reliability Plan? Reliability Goals? 2. Is reliability an integral part of strategic business planning? 3. Do reliability requirements exist for all engineering projects? 4. Is there a reliability plan for each engineering project? 5. What training relevant to reliability is provided to employees? 6. What reliability analysis is conducted? 7. Are design rules used effectively to avoid known failures? 8. How effective is testing? 9. How are suppliers managed 10. How is parts selection managed? 11. How is parts supply managed? 12. How effective is failure data tracking and analysis?

22 Develop a Scoring System Scoring: 4 = 100%, top priority, always done 3 = >75%, use normally, expected 2 = 25% - 75%, variable use 1 = <25%, only occasional use 0 = not done or discontinued - = not visible, no comment

23 Example Survey Topic/Score To what extent is FMEA used? Design Engineer Response: Used only as a troubleshooting tool Score = 1 Manufacturing Engineer Response: Commonly used on critical design elements Score = 3 Reliability Engineer Response: Always used on all products Score = 4 Results: Score 2.6 Comment: Clearly a disconnect between reliability and design engineering indicative of a problem with the tool.

24 Results & Meaning Looking for trends, gaps in process, skill mismatches, over analysis, under analysis. Looking for differences across the organization, pockets of excellence, areas with good results Process provides snapshot of current system No one tool make an entire reliability program. The tools need to match the needs of the products and the culture. Check step is critical before moving to recommendation around improvement plan

25 Summary of Past Assessments What Companies Are Weak at Goal setting/planning Repair/warranty invisible Lessons learned capture Single owner of product reliability Multiple defect tracking systems Reliability Integration Statistics

26 Reliability Maturity Matrix 5 levels of maturity Based on IEEE 1624: IEEE Standard for Organizational Reliability Capability Similar to Crosby s Quality Maturity On the following page is a matrix based on Crosby s as an example. Read across each row and find the statement that seems most true for your organization. The center of mass of the levels is the organization s overall level.

27 Reliability Maturity Matrix 1. Management 2. Product Reqts. 3. Engineering 4. Feedback Process ATTRIBUTES Stage 1: Uncertainty 1.1 Understanding & Attitude No comprehension of reliability as a management tool. Tend to blame engineering for reliability problems 1.2 Status Reliability is hidden in manufacturing or engineering departments. Reliability testing probably not done. Emphasis on initial product functionality. 1.3 Measured Cost of Unreliability 2.1 Requirement & Planning 2.2 Training & Development Not done other than anecdotally Informal or nonexistent Informally available to some, if requested 3.1 Analysis Nonexistent or solely based on manufacturing issues Stage 2: Awakening Stage 3: Enlightenment Recognizing that reliability management may be of value but not willing to provide money or time to make it happen. A stronger reliability leader appointed, yet main emphasis is still on an audit of initial product functionality. Reliability testing still not performed. Direct warranty expenses only Basic requirements based on customer requirements or standards. Plans have required activities. Select individuals trained in concepts and data analysis. Available training for design engineers Point estimates and reliance on handbook parts count methods. Basic identification and listing of failure modes and impact 3.2 Testing Primarily functional Generic test plan exists with reliability testing only to meet customer or standards specifications 3.3 Supply Chain Management 4.1 Failure Data Tracking & Analysis 4.2 Validation & Verification 4.3 Reliability Improvements 5. Prevailing Sentiment Selection based on function and price Failures during function testing may be addressed Informal and based on individuals rather than process Nonexistent or informal We don t know why we have problems with reliability Approved vendor list maintained. Audits based on issues or with critical parts. Qualification primarily based on vendor datasheets. Pareto analysis of field return and internal testing. Failure analysis relies on vendor support. Basic verification that plans are followed. Field failure data regularly reported. Design and process change followed. Corrective action process includes internal and vendor engagement. Is it absolutely necessary to always have problems with reliability? Still learning more about reliability management. Becoming supportive and helpful. Reliability manager reports to top management, with role in management of division. Warranty, corrective action materials and engineering costs monitored Requirements include environment and use profiles. Some apportionment. Plans have more details with regular reviews. Training for engineering community for key reliability related processes. Managers trained on reliability and lifecycle impact. Formal use of FMEA. Field data analysis of similar products used to adjust predictions. Design changes cause reevaluation of product reliability Detailed reliability test plan with sample size and confidence limits. Results used for design changes & vendor evals. Assessments and audit results used to update AVL. Field data and failure analysis related to specific vendors. Root cause analysis used to update AVL and prediction models. Summary of analysis results disseminated. Supplier agreements around reliability monitored. Failure modes regularly monitored. Effectiveness of corrective actions tracked over time. Identified failure modes addressed in other product. Improvement opportunities identified as environment and use profiles change. Through commitment and reliability improvement we are identifying and resolving our problems. Stage 4: Wisdom Participating. Understand absolutes of reliability management. Recognize their personal role in continuing emphasis. Reliability manager is an officer of company; effective status reporting and preventive action. Involved with consumer affairs. Customer and lifecycle unreliability costs determined and tracked Plans are tailored for each project and projected risks. Use of distributions for environmental and use conditions. Reliability and statistics courses tailored for design and manufacturing engineers. Senior managers trained on reliability impact on business. Predictions are expressed as distributions and include confidence limits. Environmental and use conditions used for simulation and testing. Accelerated tests and supporting models used. Testing to failure or destruct limits conducted Vendor selection includes analysis of vendor s reliability data. Suppliers conduct assessments and audit of their suppliers. Focus is on failure mechanisms. Failure distribution models updated based on failure data Internal reviews of reliability processes and tools. Failure mechanisms regularly monitored and used to update models and test methods Identified failure mechanisms addressed in all products. Advanced modeling techniques explored and adopted. Formal and effective lessons learned process exists. Failure prevention is a routine part of our operation. Stage 5: Certainty Consider reliability management an essentia part of company system. Reliability manager is on board of directors. Prevention is main concern. Reliability is a thought leader. Lifecycle cost reduction done through produc reliability improvements Contingency planning occurs. Decisions based on business or market considerations Part of strategic business plan. New technologies and reliability tools tracked and training adjusted to accommodate. Reliability training actively supported by top management. Lifecycle cost considered during design. Stress and damage models created and used. Extensive risk analysis for new technologies. Test results used to update component stres and damage models. New technologies characterized. Changes in environment, use profile, or design, trigger vendor reliability assessment Component parameters and reliability monitored for stability Customer satisfaction relationship to product failures is understood. Use of prognostic methods to forestall failure. Reliability predictions match observed field reliability. New technologies evaluated and adopted to improve reliability. Design rules updated based on field failure analysis. We know why we do not have problems with reliability.

28 Reliability Maturity Matrix (cont d) Lets look at one row to get a better understanding ATTRIBUTE Stage 1: Uncertainty 1.1 Understanding & Attitude No comprehension of reliability as a management tool. Tend to blame engineering for reliability problems Stage 2: Awakening Recognizing that reliability management may be of value but not willing to provide money or time to make it happen. Stage 3: Enlightenment Still learning more about reliability management Becoming supportive and helpful. Stage 4: Wisdom Participating. Understand absolutes of reliability management Recognize their personal role in continuing emphasis. Stage 5: Certainty Consider reliability management an essential part of company system.

29 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

30 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

31 Warranty vs. Maturity by Industry Some of above data courtesy of Eric Arnum, Warranty Week Ops Magazine A La Carte LLC 2012 % of Revenue SECTOR Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Automotive Manufacturer Auto Parts Suppliers Aerospace and Marine Computers Telecom Semiconductor Consumer Electronics Medical and Scientific Data Storage PC Peripherals Appliances and HVAC Homebuilders Building Materials Power Generation

32 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

33 Calculating the Cost of Repair When calculating, include the following processes: Call center processes (even if you outsource) Support organization processes (even if you outsource this function) On-site repair (service engineers/authorized service suppliers) Supply chain processes Spare parts management (usually as an overhead) Spare parts logistics Manufacturing/factory resources expensed against above processes (usually as overhead expenses) Return parts testing process Reliability/Quality engineering resources

34 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

35 Cost of New Reliability Program Extra engineering support for tools Consulting/test lab time for extra tests Test equipment rental Cost of units under test Cost of troubleshooting/failure analysis Cost of product changes/ecns Training

36 Factors Involved in Calculating DFR ROI Improved Warranty Rate (derived from your Reliability Maturity Level) Current Warranty Rate Cost per Repair Cost of New Reliability Program Savings from Losing Fewer Customers Volume

37 Savings from Losing Fewer Customers A. Calculate # of customers lost over the past year due to reliability/quality issues B. Calculate # of customers lost over the past year for unexplained reasons If Stage 1= Multiply by 80% If Stage 2 = Multiply by 60% If Stage 3 = Multiply by 40% If Stage 4 = Multiply by 20% If Stage 5 = Multiply by 0% Calculate Number of Fewer Customers Lost Determine average amount of revenue per customer Multiply Difference in # of customers lost x revenue per customer

38 DFR ROI CALCULATION

39 DFR ROI Calculation 1. Perform Assessment/Determine Maturity Level 2. Determine maturity level desired 3. Determine your industry sector 4. Subtract Warranty % between two levels 5. Calculate Average Cost of Repair 6. Calculate Cost of New Reliability Program 7. Calculate Savings from Fewer Lost Customers 8. Determine Volume of Shipments 9. Calculate Repair Cost Savings 10.Calculate ROI

40 ROI EXAMPLE: MEDICAL PRODUCT

41 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific

42 Reliability Maturity Matrix - start 1. Management 2. Product Reqts. 3. Engineering 4. Feedback Process ATTRIBUTES Stage 1: Uncertainty 1.1 Understanding & Attitude No comprehension of reliability as a management tool. Tend to blame engineering for reliability problems 1.2 Status Reliability is hidden in manufacturing or engineering departments. Reliability testing probably not done. Emphasis on initial product functionality. 1.3 Measured Cost of Unreliability 2.1 Requirement & Planning 2.2 Training & Development Not done other than anecdotally Informal or nonexistent Informally available to some, if requested 3.1 Analysis Nonexistent or solely based on manufacturing issues Stage 2: Awakening Stage 3: Enlightenment Recognizing that reliability management may be of value but not willing to provide money or time to make it happen. A stronger reliability leader appointed, yet main emphasis is still on an audit of initial product functionality. Reliability testing still not performed. Direct warranty expenses only Basic requirements based on customer requirements or standards. Plans have required activities. Select individuals trained in concepts and data analysis. Available training for design engineers Point estimates and reliance on handbook parts count methods. Basic identification and listing of failure modes and impact 3.2 Testing Primarily functional Generic test plan exists with reliability testing only to meet customer or standards specifications 3.3 Supply Chain Management 4.1 Failure Data Tracking & Analysis 4.2 Validation & Verification 4.3 Reliability Improvements 5. Prevailing Sentiment Selection based on function and price Failures during function testing may be addressed Informal and based on individuals rather than process Nonexistent or informal We don t know why we have problems with reliability Approved vendor list maintained. Audits based on issues or with critical parts. Qualification primarily based on vendor datasheets. Pareto analysis of field return and internal testing. Failure analysis relies on vendor support. Basic verification that plans are followed. Field failure data regularly reported. Design and process change followed. Corrective action process includes internal and vendor engagement. Is it absolutely necessary to always have problems with reliability? Still learning more about reliability management. Becoming supportive and helpful. Reliability manager reports to top management, with role in management of division. Warranty, corrective action materials and engineering costs monitored Requirements include environment and use profiles. Some apportionment. Plans have more details with regular reviews. Training for engineering community for key reliability related processes. Managers trained on reliability and lifecycle impact. Formal use of FMEA. Field data analysis of similar products used to adjust predictions. Design changes cause reevaluation of product reliability Detailed reliability test plan with sample size and confidence limits. Results used for design changes & vendor evals. Assessments and audit results used to update AVL. Field data and failure analysis related to specific vendors. Root cause analysis used to update AVL and prediction models. Summary of analysis results disseminated. Supplier agreements around reliability monitored. Failure modes regularly monitored. Effectiveness of corrective actions tracked over time. Identified failure modes addressed in other product. Improvement opportunities identified as environment and use profiles change. Through commitment and reliability improvement we are identifying and resolving our problems. Stage 4: Wisdom Participating. Understand absolutes of reliability management. Recognize their personal role in continuing emphasis. Reliability manager is an officer of company; effective status reporting and preventive action. Involved with consumer affairs. Customer and lifecycle unreliability costs determined and tracked Plans are tailored for each project and projected risks. Use of distributions for environmental and use conditions. Reliability and statistics courses tailored for design and manufacturing engineers. Senior managers trained on reliability impact on business. Predictions are expressed as distributions and include confidence limits. Environmental and use conditions used for simulation and testing. Accelerated tests and supporting models used. Testing to failure or destruct limits conducted Vendor selection includes analysis of vendor s reliability data. Suppliers conduct assessments and audit of their suppliers. Focus is on failure mechanisms. Failure distribution models updated based on failure data Internal reviews of reliability processes and tools. Failure mechanisms regularly monitored and used to update models and test methods Identified failure mechanisms addressed in all products. Advanced modeling techniques explored and adopted. Formal and effective lessons learned process exists. Failure prevention is a routine part of our operation. Stage 5: Certainty Consider reliability management an essentia part of company system. Reliability manager is on board of directors. Prevention is main concern. Reliability is a thought leader. Lifecycle cost reduction done through produc reliability improvements Contingency planning occurs. Decisions based on business or market considerations Part of strategic business plan. New technologies and reliability tools tracked and training adjusted to accommodate. Reliability training actively supported by top management. Lifecycle cost considered during design. Stress and damage models created and used. Extensive risk analysis for new technologies. Test results used to update component stres and damage models. New technologies characterized. Changes in environment, use profile, or design, trigger vendor reliability assessment Component parameters and reliability monitored for stability Customer satisfaction relationship to product failures is understood. Use of prognostic methods to forestall failure. Reliability predictions match observed field reliability. New technologies evaluated and adopted to improve reliability. Design rules updated based on field failure analysis. We know why we do not have problems with reliability.

43 Reliability Maturity Matrix - desired 1. Management 2. Product Reqts. 3. Engineering 4. Feedback Process ATTRIBUTES Stage 1: Uncertainty 1.1 Understanding & Attitude No comprehension of reliability as a management tool. Tend to blame engineering for reliability problems 1.2 Status Reliability is hidden in manufacturing or engineering departments. Reliability testing probably not done. Emphasis on initial product functionality. 1.3 Measured Cost of Unreliability 2.1 Requirement & Planning 2.2 Training & Development Not done other than anecdotally Informal or nonexistent Informally available to some, if requested 3.1 Analysis Nonexistent or solely based on manufacturing issues Stage 2: Awakening Stage 3: Enlightenment Recognizing that reliability management may be of value but not willing to provide money or time to make it happen. A stronger reliability leader appointed, yet main emphasis is still on an audit of initial product functionality. Reliability testing still not performed. Direct warranty expenses only Basic requirements based on customer requirements or standards. Plans have required activities. Select individuals trained in concepts and data analysis. Available training for design engineers Point estimates and reliance on handbook parts count methods. Basic identification and listing of failure modes and impact 3.2 Testing Primarily functional Generic test plan exists with reliability testing only to meet customer or standards specifications 3.3 Supply Chain Management 4.1 Failure Data Tracking & Analysis 4.2 Validation & Verification 4.3 Reliability Improvements 5. Prevailing Sentiment Selection based on function and price Failures during function testing may be addressed Informal and based on individuals rather than process Nonexistent or informal We don t know why we have problems with reliability Approved vendor list maintained. Audits based on issues or with critical parts. Qualification primarily based on vendor datasheets. Pareto analysis of field return and internal testing. Failure analysis relies on vendor support. Basic verification that plans are followed. Field failure data regularly reported. Design and process change followed. Corrective action process includes internal and vendor engagement. Is it absolutely necessary to always have problems with reliability? Still learning more about reliability management. Becoming supportive and helpful. Reliability manager reports to top management, with role in management of division. Warranty, corrective action materials and engineering costs monitored Requirements include environment and use profiles. Some apportionment. Plans have more details with regular reviews. Training for engineering community for key reliability related processes. Managers trained on reliability and lifecycle impact. Formal use of FMEA. Field data analysis of similar products used to adjust predictions. Design changes cause reevaluation of product reliability Detailed reliability test plan with sample size and confidence limits. Results used for design changes & vendor evals. Assessments and audit results used to update AVL. Field data and failure analysis related to specific vendors. Root cause analysis used to update AVL and prediction models. Summary of analysis results disseminated. Supplier agreements around reliability monitored. Failure modes regularly monitored. Effectiveness of corrective actions tracked over time. Identified failure modes addressed in other product. Improvement opportunities identified as environment and use profiles change. Through commitment and reliability improvement we are identifying and resolving our problems. Stage 4: Wisdom Participating. Understand absolutes of reliability management. Recognize their personal role in continuing emphasis. Reliability manager is an officer of company; effective status reporting and preventive action. Involved with consumer affairs. Customer and lifecycle unreliability costs determined and tracked Plans are tailored for each project and projected risks. Use of distributions for environmental and use conditions. Reliability and statistics courses tailored for design and manufacturing engineers. Senior managers trained on reliability impact on business. Predictions are expressed as distributions and include confidence limits. Environmental and use conditions used for simulation and testing. Accelerated tests and supporting models used. Testing to failure or destruct limits conducted Vendor selection includes analysis of vendor s reliability data. Suppliers conduct assessments and audit of their suppliers. Focus is on failure mechanisms. Failure distribution models updated based on failure data Internal reviews of reliability processes and tools. Failure mechanisms regularly monitored and used to update models and test methods Identified failure mechanisms addressed in all products. Advanced modeling techniques explored and adopted. Formal and effective lessons learned process exists. Failure prevention is a routine part of our operation. Stage 5: Certainty Consider reliability management an essentia part of company system. Reliability manager is on board of directors. Prevention is main concern. Reliability is a thought leader. Lifecycle cost reduction done through produc reliability improvements Contingency planning occurs. Decisions based on business or market considerations Part of strategic business plan. New technologies and reliability tools tracked and training adjusted to accommodate. Reliability training actively supported by top management. Lifecycle cost considered during design. Stress and damage models created and used. Extensive risk analysis for new technologies. Test results used to update component stres and damage models. New technologies characterized. Changes in environment, use profile, or design, trigger vendor reliability assessment Component parameters and reliability monitored for stability Customer satisfaction relationship to product failures is understood. Use of prognostic methods to forestall failure. Reliability predictions match observed field reliability. New technologies evaluated and adopted to improve reliability. Design rules updated based on field failure analysis. We know why we do not have problems with reliability.

44 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Subtract Warranty % between two levels

45 Warranty vs. Maturity by Industry % of Revenue SECTOR Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Automotive Manufacturer Auto Parts Suppliers Aerospace and Marine Computers Telecom Semiconductor Consumer Electronics Medical and Scientific Data Storage PC Peripherals Appliances and HVAC Homebuilders Building Materials Power Generation

46 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Subtract Warranty % between two levels Warranty % Level 2 = 1.4% Warranty % Level 3 = 0.7% Difference = 0.7%

47 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Calculate Average Cost of Repair

48 Calculating the Cost of Repair Call center processes = $200 Support organization processes (even if you outsource this function) = $200 Supply chain processes = $1000 Manufacturing/factory resources expensed against above processes = $300 Reliability/Quality engineering resources = $300 TOTAL = $2K

49 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Average Cost of Repair = $2K 6. Calculate Cost of New Reliability Program

50 Cost of New Reliability Program Extra engineering support for tools = $10K Consulting/test lab time for extra tests = $10K Test equipment rental = $5K Cost of units under test = $10K Cost of troubleshooting/failure analysis = $10K Cost of product changes/ecns = $20K Training = $10K TOTAL = $75K

51 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Average Cost of Repair = $2K 6. Cost of New Reliability Program = $75K 7. Savings from Fewer Lost Customers

52 Savings from Losing Fewer Customers A. Calculate # of customers lost over the past year due to reliability/quality issues = 3 B. Calculate # of customers lost over the past year for unexplained reasons = 10 If Stage 2 = Multiply by 60% If Stage 3 = Multiply by 40% Calculate Number of Fewer Customers Lost Stage 2 = 3 + (10*0.6) = 9 Stage 3 = 3 + (10*0.4) = 7 Difference = 2 Average amount of revenue per customer = $100K Multiply Difference in # of customers lost x revenue per customer $200K savings from fewer lost customers

53 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Average Cost of Repair = $2K 6. Cost of New Reliability Program = $75K 7. Savings from Fewer Lost Customers = $200K 8. Volume of Shipments = 5,000/year

54 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Average Cost of Repair = $2K 6. Cost of New Reliability Program = $75K 7. Savings from Fewer Lost Customers = $200K 8. Volume of Shipments = 5,000/year 9. Repair Cost Savings = Volume * Warranty * Cost of Repair = 5000*0.7%*$2K = $70K

55 DFR ROI Calculation 1. Starting maturity level = 2 2. Desired maturity level = 3 3. Industry Sector = Medical and Scientific 4. Warranty % Difference = 0.7% 5. Average Cost of Repair = $2K 6. Cost of New Reliability Program = $75K 7. Savings from Fewer Lost Customers = $200K 8. Volume of Shipments = 5,000/year 9. Repair Cost Savings = $70K 10.Calculate ROI

56 Calculating ROI ROI = Repair Savings + Fewer Lost Customers - Reliability Prog Cost ROI = $70K + $200K - $75K ROI = $195K / year

57 Conclusion Today we have shown you a powerful new tool, the DFR ROI Calculator. With this tool, you can Justify using new techniques Quantify how much improvement you will make Balance cost savings with improvements

58 Q&A

59 Contact Information Ops A La Carte, LLC Mike Silverman Managing Partner (408) mikes@opsalacarte.com