A key customer contacted a machine tool manufacturer about poor recent performance they
had experienced regarding on-time delivery of the product. On-time deliveries were at 85%,
instead of the desired target value of 100%, and the customer could choose to exercise a
penalty clause to reduce by up to 15% of the price of each tool, or about a $60,000 loss for
the manufacturer. The customer was also concerned about the manufacturer’s factory capacity
and its capability to meet their production schedule in the future. The customer represented
about $8 million of business volume for the immediate future—the manufacturer needed a
revised business process to resolve the problem or the customer might consider seeking a second
source supplier for the critical tool.
A team was formed to determine the root causes of the delivery problem and implement
a solution. One team member was a project engineer who was sent to a supplier factory, with
the purpose to work closely with the supplier, to examine all the processes used in manufacturing
of the tool, and to identify any gaps in the processes that affected delivery. Some of the
supplier’s processes might need improvement.
Define. The objective of the project was to achieve 100% on-time delivery. The customer
had a concern regarding on-time delivery capability, and a late deliveries penalty clause
could be applied to current and future shipments at a cost to the manufacturer. Late deliveries
also would jeopardize the customer’s production schedule, and without an improved process
to eliminate the on-time delivery issue, the customer might consider finding a second source
for the tool. The manufacturer could potentially lose as much as half of the business from the
customer, in addition to incurring the 15% penalty costs. The manufacturer also would experience
a delay in collecting the 80% equipment payment customarily made upon shipment.
The potential savings for meeting the on-time delivery requirement was $300,000 per
quarter. Maintaining a satisfied customer also was critical.
Measure. The contractual lead time for delivery of the tool was eight weeks. That is,
the tool must be ready for shipment eight weeks upon receipt of the purchase order. The CTQ
for this process was to meet the target contractual lead time. Figure 2.4 shows the process map
for the existing process, from purchase order receipt to shipment. The contractual lead time
could be met only when there was no excursion or variation in the process. Some historical
data on this process was available, and additional data was collected over approximately a
two-month period.
Analyze. Based on the data collected from the measure step, the team concluded that
problems areas came from:
1. Supplier quality issues: Parts failed prematurely. This caused delay in equipment final
testing due to trouble shooting or waiting for replacement parts.