454% ROI/$700,000 Cost

A 454% ROI at a $700,000 Cost is Achievable, The Detail Follows

Consequently, a ~454% ROI at a $700,000 cost can deliver 6+ Sigma performance. The Toyota Production System has operated at 6+ Sigma for at least 15 years. 10 of 15 cars owned by original owners for at least 15 years are Toyota’s. Toyota is more profitable than the next automobile manufacturer that has grown organically, rather than by acquisition and has amongst the highest profit margins among large auto manufacturers.

Cost Calculations

  • 1 Lean Six Sigma Master Black Belt: $200,000 per year + Performance Bonuses
  • 3 Lean Six Sigma Black Belts: @ $100,000 each per year
  • 2 Lean Six Sigma Green Belts: @ $100,000 each per year
  • (Manufactures Only, Industrial Engineer: @ $105,000 each year)
  • Total Salaries: $700,000
  • (Manufacturers Only, Total Salaries: $805,000)

~ 454% ROI Calculation

In other words, ~ 454% ROI is an estimate and may be too low. It is based on the nominal ROIs of team members:

On average a Black Belt returns $1,000,000/year of benefits. As you are building your Production System, this may be an underestimate.

I estimate each Green Belt will return about $88,000/year. Though this may seem high I expect the Green Belts to be highly driven by the Black Belts and continuously increase performance during the year.

Therefore: $3,000,000 for the 3 Black Belts, and $176,000 for the 2 Green Belts equals > $3,176,000

3,176,000 benefits / $700,000 cost x 100% = Final ROI Result ~ 454%

Manipulate the numbers, however, you wish but no matter what, they will be impressive and have a winning system.

Manufacturers Only

Manufacturers need to add an Industrial engineer to add additional value. They will work on (1) Preventative Maintenance, (2) Identifying areas of Flow and Potential Flow, (3) Introduce Autonomation, and (4) Establish Success Metrics, as well as possibly Other Activities. All other costs are the same as listed above except for the addition of the cost of the Industrial Engineer.

The benefit of the Industrial Engineer is fairly imprecise and my guess is $200,000 (It could be much more).

This leads to a total benefit of $3,000,000 for each of 3 Black Belts, $200,000 for the Industrial Engineer, and $176,000 for the 2 Green Belts equals > $3,376,000

3,376,000 benefits / $805,000 cost x 100% = Final ROI Result ~ 419%

A Quick Discussion on the Power of Value Streams and What the Map Delivers

The Value Stream Map model contains information about each process such as:

  • Throughput Performance Time,
  • Cost,
  • Quality or Defect Rate, and
  • Time Value is added

This is aggregated together to attain Value Stream metrics.

The time to Map a Value Stream is indeterminate because it includes the number of processes and the complexity of the process. Here are two examples of Process Complexity:

Simple Process

This process has simple activities that are easy to measure such as a Claims Management Process. The mapping of that process would include:

  • The Process Operator and Value Stream Mapper discuss improvement ideas,
  • Process Operator Overviews Process Activities,
  • Collect Time for Each Activity,
  • Roughout cost of Process,
  • Determine Defect Rate, and
  • Determine the time of actual value add

The Value Stream Mapper should be able to do about 2 processes a day.

Complex Process

This represents a complex process. It may involve complex equipment and a highly trained Process Operator. An example is the machining of a jet engine turbine. This mapping effort includes:

  • The Process Operator and Value Stream Mapper discuss improvement ideas,
  • Process Operator Overviews Process Activities,
  • Collect Time for Each Activity,
  • Roughout cost of Process including:
    • machine cost,
      • Acquisition
      • Upkeep/maintenance,
      • Repair
      • Depreciation
    • space cost,
    • personnel cost,
    • personnel training cost, and
    • material cost,
    • downtime cost,
  • Determine Defect Rate, and
  • Determine the time of actual value add

This process may take from 1 day to 1 1/2 days to map.

This addresses complexity. Take the number of Processes in a Value Stream and the Process Complexity to determine a Value Stream Mapping time estimate. Depending on the number and complexity may take a week or a month. The Plans generated an estimated 1 Value Stream a month, which is probably low. Black Belts can work on complex Value Streams and Green Belts can work on simpler ones. A Value Stream Map gives you Profound Knowledge of all the processes within the Value Stream.

Profound Knowledge Benefit

At the end of the Value Stream Mapping, you will have Profound Knowledge of every Value Stream Process. The next step is to start the Kata Continuous Improvement, Policy Propagation, and Realization Program on the Value Streams. Kata starts the improvement of every process and mapping gives you the knowledge to determine which processes to improve first. Black Belts determine the processes on which to start improvements and lead improvement efforts on the more complex Value Streams.

Personnel Responsibilities – All Working Together as a Team

  • Lean Six Sigma Master Black Belt:
    • Certainly, responsible for delivering a 450% ROI,
    • Educate management on the benefits of the Toyota Production System,
    • Program Manage and plan the effort,
    • Align project efforts to business objectives,
    • Analyzes the data and current condition,
    • Set achievable goals and metrics,
    • Align assignments of the team and additional requirements,
    • Perform regular reporting,
    • Keep the focus on moving to 6+ Sigma,
    • High-Level Project Manage the effort, and
    • Familiarize the delivery team with the benefits of the Toyota Production System.
  • Lean Six Sigma Black Belts:
    • Work closely with the Master Black Belt to align projects with business objectives,
    • Detailed project management,
    • Educate and lead Green Belts on assigned projects,
    • Put the Kata Continuous Improvement structure in place, assign personnel,
    • Select tools for projects,
    • Counsel Master Black Belt on Green Belt hires, and
    • Report progress.
  • Lean Six Sigma Green Belts:
    • Build Value Streams,
    • Utilize Lean Six Sigma tools to achieve success,
    • Send Status Reports to Black Belts, and
    • Notify Black Belts of potential issues.

In Summary, Black Belts will map the more complex Value Streams as these require more expertise, They will also support the analysis of the Green Belt Mapped Value Streams to determine areas of potential flow. The Master Black Belt oversees Project Management and works with Black Belts as a mentor. The Black Belts mentor the Green Belts.

Accelerate the Effort

This mixture of Solution Experts is expandable by adding Green Belts. This will accelerate the movement towards 6+ Sigma.

454% ROI Summary

It would be worth almost any cost to Operate a system running at 6+ Sigma. Begin today to start your progress to 6+ Sigma.