EXECUTIVE SUMMARY

By performing the Lean Black Belt study on scrap metal sales, the organization was able to realize an increase in scrap metal sales even with an abnormally high level of scrap metal cross contamination. In the fiscal year of 2013, the organization increased scrap metal sales by $182,021.84 or 47.2% from the previous year. This exceeded the yearly goal of $87,972.16 or 22.8%, derived from a sample 3rd party audit of a single scrap metal delivery. The yearly results could have been higher due to the devaluation of overall metal prices in 2013 from 2012.

The Cost of Poor Quality (COPQ) represented in the cross contamination of the scrap metal proved harder to improve. From the 3rd party audit of the scrap metal process, the estimated range of the cost of cross contaminated metals was from $13,494 to $31,919. The actual level of cross contaminated metal in 2013 was $23,941. Even though the value of the COPQ was within the range of the estimate, improved measurement of defects in 2013 indicateda higher defect level of 1.5 Sigma. Thus, the scrap metal sample audit was not a true representative of the entire population signifying an opportunity for future improvement.

MOELLER MANUFACTURING

Established in 1953, Moeller Manufacturing Company is an advanced manufacturing facility specializing in machined parts for the gas turbine aircraft engine and power generation industries that encompasses a majority of commercial and military aircraft operated in the United States and numerous fleets worldwide. The product line includes small items such as specialized self-locking fasteners to complex brackets, housings, manifolds, blade, and vane manufacturing. To generate the products, the organization has over 165,000 square feet of overall production space for over 650 employees. The measurable commitment to quality is shown as an approved supplier to most major aerospace OEMs, certified to ISO 9001, ISO 14001 and AS-9100, and accreditation under NADCAP.

DATA COMPILATION

Yearly accounting of the scrap metal volume by metal type is required by the EPA for environmental compliance (TRI Report). The reporting by the scrap metal purchaser provides to the government and selling organization the type and quantity of scrap metal provided for sale. Upon review by the Moeller Manufacturing Environmental Health and Safety Officer (Sean Paul, EH&S), the scrap metal purchaser during 2010-12 provided total and segmented scrap metal volumes that didn’t match internal detail or responses by the scrap metal purchaser. The EH&S officer launched a detailed analysis to verify the data to the EPA (See Appendix regarding Early Scrap Metal Problem Identification, Calculation, and Cross Contamination Letter). The detailed spreadsheet indicated the overall scrap metal cross contamination at a level exceeding 50%, pricing the metal at low value steel. The spreadsheet was verified by the Master Black Belt (Gary Kapanowski). The next step was to visually inspect the production floor to see if this cross contamination level is actually occurring.

GEMBA WALKS

Project team visually reviewed production floor operations and procedures to verify the external vendors reporting of the scrap metal sales. Upon three different review opportunities, the team didn’t experience excessive levels of cross contamination. The findings resulted in zero cross contamination defects and validated the current processes. Defects were noted in the internal manual shipping log. The process audit on the manual shipping log indicated anemployee issue for the defects. A change in both the manual shipping log and employee was instituted in 2013 for process improvement and improved measurement data.

THIRD PARTY AUDIT TEST

The goal for the third party audit test was to verify the discrepancy of the scrap mix and total weight represented by internal and external metrics as seen in the EPA environmental compliance reports (TRI Reports). The project team met with a new vendor (East Side Metals / RJ Torching) to perform the audit of one scrap metal shipment on 12/20/12 before the original vendor receives the shipment. The new vendor will report and validate the scrap metal volume mix, internal processes, and the value of the scrap metal. The scrap metal shipment was returned sealed and released to the original vendor for accurate comparison. See the Appendix section for Audit procedures and detailed results.

The audit indicated the shipment value exceeded the original vendor’s value by $1,496.66 or 22.8%. The Project team requested additional testing to validate the 22.8% metric. Management decided the metric was acceptable for this project to continue and use as the goal for 2013.

PROJECT CHARTER

The project team successfully completed a project charter authorized by management as the sponsor. The following are the key details agreed to execute the project charter into operations:

  • Project Description: To maximize the value for scrap metal throughout the organization.
  • Business Case: By not following basic operational procedures, the scrap metal barrels experience cross contamination which cost an average $13,494 to $31,919 per year.
  • Problem Statement: Per third party audit of the scrap metal process on 12/18/12 and historical data as background information, the Cost of Poor Quality (COPQ) for scrap metal is in the range of $13,494 to $31,919 in cross contamination per year due to poor internal processes and adherence to current procedures. Overall scrap metal sales increase by audit representative percentage of 22.8% or $87,972.16.
  • GOALS:
  • 0 barrels of cross contamination per week
  • 2% overall AVG of cross contamination per barrel
  • 3% overall AVG of liquid weight
  • 2013 scrap metal sales $473,814.96
  • Expected Business Results:
  • Increase in scrap value through reduction in cross contamination: $13,494 to $31,919 per year
  • Increase in scrap value though improved scrap metal pricing: $87,972.16
  • Lower average % of cross contamination per barrel: Lower than 3%
  • Lower per barrel defect in cross contamination: Zero per year
  • Lower machine maintenance cost per year
  • Improved production efficiency per year
  • Reduction in scrap units per year
  • Improved production problem solving using the symptom of scrap metal from barrels to indicate inefficiencies at specific machines
  • Expected Customer Benefits:
  • Improved delivery time through improved production efficiency and quality due to reduction in scrap units and improved problem solving tools

CRITICAL TO SUCCESS FACTOR

The project team determined quality was the critical to success factor for this project. Due to the EPA environmental compliance issue, proper reporting of scrap metal is vital to comply with the organization’s mission statement authorized by management and reviewed by the AS9100 and ISO14001 internal and external auditors.

LEAN SIX SIGMA STUDY

The team followed the six sigma steps for DMAIC as described by the LEAN SIX SIGMA POCKET TOOLBOOK (George, Rowlands, Price, & Maxey). This section will review the detail behind each step to implement process improvement to reach the metric goals. The team performed a Lean Six Sigma A3 presentation to clearly identify the DMAIC process.

DEFINE

The project charter was approved with measureable goals as described in the PROJECT CHARTER section above. This included validating the problem statement, goals, and financial benefits. A process map and SIPOC diagram was completed to assist with the identification of critical to success factors.

MEASURE

The current and future state process maps were completed by the team to identify the critical issues needed for success. The team agreed the measurement system was poor due to the manual nature of the process and lack of detail as viewed during the GEMBA WALKS. The team obtained approval from the sponsor to perform athird party audit of a sample scrap metal volume and mix along with a review of the process. The audit validated the need for a new measurement system and developed a baseline used in the project charter for the project goals. The details on the audit are listed below:

  • 52 barrels containing a total of 6,699 lbs. with 4,971 lbs. for scrap metal
  • Average estimate 3% of cross contamination per barrel
  • The individual barrel weight ranged from 17 lbs. - 280 lbs., avg. of 96 lbs.
  • One barrel was 45% cross contaminated
  • 63% of sample is under the 3% avg. for cross contamination per barrel
  • AUDIT STATE: 2.5 SigmaDPMO 19,231Yield 98.08%
  • CURRENT STATE: 2.0 SigmaDPMO 45,400Yield 95.46%
  • FUTURE STATE: 3.0 SigmaDPMO 2,700Yield 99.73%

Due to the limited availability of accurate measurable data or additional audit samples, the capability of the scrap metal sales process couldn’t be identified at this time. After a full year of data with the improved data measurement process installed, this capability of the process will be identified to advance the process improvement of the scrap metal sales. A cause-and-effect diagram (Ishikawa diagram) was completed at this time to verify if other inputs were necessary to validate other than the measurement system (See Appendix). The identification of cross contamination, collecting of the scrap metal data, and pricing of scrap metal were considered as a priority in testing for Analyze.

Several Lean initiatives were identified and implemented during this process since there was no risk to the project or other processes. The team changed the internal reporting from manual to an electronic format to error proof (poka yoke) the data entry process. The team also implemented anemployee change to expedite change.

ANALYZE

The team reviewed the audit results and determined the scrap metal vendor was the main cause for the Cost of Poor Quality (COPQ). This was identified through the process of completing the problem solving report utilizing the cause-and-effect diagram (See Appendix). The 5Whys was used to determine the root cause of the problem was the cross contamination of scrap metal, either internal and/or external. The third party audit identified the cross contamination defects were originating from the scrap metal vendor. This analysis allowed for the team to pass on additional statistical analysis and implement a change scrap metal vendor to start in January 2013.

Although the third party audit sample indicated a 2.5 Sigma (1 barrel per week or 52 barrels per year), the real current state is 2 Sigma (2 barrels of contamination per week or 123 barrels per year) based on overall risk assessment and a single audit sample for analysis. By implementing changes in procedures, the scrap metal Cost of Poor Quality (COPQ) will fall to 3, 7 barrels per year.

Several of the audit results were reviewed in detail, see below:

  • There were eight barrels with average of cross contamination exceeding 3% representing 18% of the sample size weight
  • ALUMINUMP13D45% (defect)
  • A286P12D31%
  • INCO 718P3D41%
  • INCO 718P3D41%
  • SAW MIXP13D23%
  • TI P10D42%
  • TI P13D32%
  • UNKNOWNP12D12%
  • UNKNOWNP7D22%

To complete the root cause and significant cause-and-effect relationship for the potential causes, the team used brainstorming, Cause & Effect matrix, and Pareto charts validate the search drivers (See Appendix).

A failure mode and effect analysis (FEMA) was completed to identify and mitigate risks. Each input was validated with at least one selection in the FEMA. Of significant note, the risk of achieving future gains in scrap metal sales still reside in implementing the lean initiatives as described in the FUTURE IMPLEMENTATION IDEAS section. Each initiative will improve the process of collecting Scrap Metal, Identifying Cross Contamination, and improve the recording of Scrap Metal.

The project team completed the Project Risk Assessment to determine the overall project risk at a low level. This indicates to the project team that there are several factors that are not in their control that could affect the successful outcome of the project. Monitoring and providing proactive adjustments to the project will mitigate the risks. The project team also successfully completed a Project Check Sheet and Project Check List indicating all necessary aspects to complete a Lean Six Sigma project was addressed (See Appendix).

IMPROVE

As seen in the ANALYZE phase, the implementation of the new scrap metal vendor was launched in January 2013. This was clear to the project team since the old scrap vendor was involved in every failure mode identified in the analysis. Addressing the three inputs selected in the analysis section will assist in achieving the project goals. By adding new procedures for collecting scrap metal, the organization can reduce the overall defect rate for cross contamination and increase the scrap sales at the optimum level. Some procedures were implemented to address this issue but the main issue of replacing barrels when the metal of the operation is still in process. Identification of cross contamination is the second improvement identified in the analysis section. Since this is sometimes difficult to identify different metals, new procedures and equipment are necessary to validate scrap metal types which will identify potential cross contamination. The third input for improvement is the pricing of the scrap metal. After the new vendor is implemented, the procedure for the review of the scrap metal prices was implemented to validate the prices used per the sales calculation. This will eliminate any defect in pricing and allow for a more transparent business relationship.

Other potential solutions were evaluated and selected to optimize the operations. The “Future State” process map was utilized as the optimization of the process. Each solution was tested as attainable and didn’t incorporate “scope creep” since they reflected the project goals and organization’s goals. The list of the additional solutions is presented below:

  • Lean Continuous Improvement Initiatives
  • Barrels need to be cleaned before use in scrap area
  • Each machine needs to be cleaned before change of metal or usage
  • Increase number of barrels for scrap metal
  • Number barrels with machine
  • Weight of barrel indication
  • Adequate baseline for metrics
  • Enhance reporting documents for scrap metal
  • Fluid weight issue to fully understand the scope for our activity
  • Optimize operations by utilizing new metrics
  • Obtain baseline metrics for cross contamination and fluid weight
  • Identifying the symptom downstream will indicate the problem upstream
  • Analyze fluid weight for improvement in effectiveness and efficiency
  • Prepare team members for change, measure results to see where future issues can be resolved
  • Obtain industry baseline standards for fluid weight issue to properly measure our results and maximize value throughout the system

CONTROL

Starting on 1/1/2013, updated procedures were installed to monitor and control the scrap metal sales process. The operational procedures were transferred from maintenance into quality with the project team member Sean Paul, EH&S Officer and the responsibility center. The accounting and management communication of the process was transferred from Accounting into the project team leader, Gary Kapanowski, Master Black Belt. Updated electronic processes and reports provide error-proofing of the data. Monthly reporting of the project and metrics communicated to management and the sponsor. Two-way communication with the new scrap metal sales vendor provided full transparency of the scrap detail and a formal process to resolve problems (See Appendix for monthly control charts for COPQ and Final A3 charts). After the fiscal year is complete and metrics obtained, the operational control will return to Accounting.

The control measures and metrics used for this project are as follows:

  • Increase in scrap value: $13,494 to $31,919 per year
  • Cost in scrap metal per barrel is on average $259.50
  • Lower average % of cross contamination below 3% per barrel
  • Lower per barrel defect in cross contamination: Zero per year
  • Lower machine maintenance cost per year
  • Improved production efficiency per year
  • Reduction in scrap units per year
  • Improved production problem solving using the symptom of scrap metal from barrels to indicate inefficiencies at specific machines

LEAN SIX SIGMA FINAL RESULTS

The results were mixed during the first year of implementation ending in the fiscal year 2013. The listing below will indicate the year end metrics:

  • Lower per barrel defect didn’t achieve the goal of 0 barrels
  • Cost of cross contaminated equated to $23,941
  • Cost per cross contaminated barrel equated to $81.71, favorable to goal of $259.50
  • Lower overall 3% of average of cross contamination per barrel across production operations didn’t achieve the goal
  • Number of barrels with cross contaminated at 293 or 9.2%
  • The DPMO equates to 90,818, yield of 90.8% or a 1.5 Sigma level
  • Obtain industry standards on fluid weight with a goal of 3%
  • Improvement to reduce fluid in scrap metal delayed by sponsor due to capital investment outside of the scope of the project
  • Overall yearly scrap sales yearly goal increase of $87,972.16 or 22.8% attained
  • Year-to-year increase in 2013 at 182,021.84 or 47.2%
  • Lower machine maintenance cost year-to-year achieved with a 36.3% reduction
  • Improved production efficiency year-to-year achieved with a 28.7% gross margin improvement
  • Reduction of scrap units year-to-year achieved : 2.67% reduction
  • Improved production problem solving using symptom of scrap metal implemented in Top 30 part cost reduction team
  • Customer scorecard regarding delivery time and quality indicates above standard or baseline achievement in 2013

RISKS OR CONSTRAINTS