Team 5:

Catherine Pellow, Ryan Fettinger, Tyler Schroeder, Radha Patel, Jonathan Yulan, Minsu Kim

Problem

Cost of raw material increased$20 million in planned cost

Raise list priceBy how much?Too much = lose customersToo little = pointless to implement

Pricing practices are hard to change

Project

Acme appointed a manager for Six Sigma steps (DMAIC)DefineMeasureAnalyzeImproveControl

Define

Clarify problem Acme manager defined defect

Transaction invoiced at lower price than set

Narrow scopeOne product line

Propose charter Collect data, carry out analysis, ensure

support

Measure

Gather data and prepare it for analysis Mapped the price agreement process

Pricing process with 6 main steps

Quality of input data assessed

Analyze

Guide discussion to ensure tasks are performedUsed a Cause-and-Effect Diagram

Standard statistical analysis

Improve

Recommend modifications to existing processes (process adjustments)Graduated discount approvalsException codes

Control

Creates controls to allow company to sustain changes (quality assurance)Set up monthly reviewsUsed control charts

The Payoff The initial goal of generating half a million

dollars in incremental revenue in the first year was completed within three months.

The average transaction price for the pilot product line went up by slightly more than the list prices.

With the help of the list price increase and the Six Sigma it resulted in $5.8 million dollars in incremental sales in the first six months.

The Payoff The Six Sigma approach drastically

reduced the friction in the Pricing-Sales relationship.

Since their recent success Acme is rolling out the Six Sigma pricing across the entire corporation.

Other companies operating in competitive environments can also benefit from Acme’s experience as they look for ways to exercise price control without alienating customers.

F

• The Cause and Effect Matrix is one of the basic tools of any Six Sigma project.• It is a vital way to judge the impact of each step on the customer in order to identify the underlying problems and their causes.

1) List the customers requirements

2) Rate the importance of each requirement

3) Describe each step

4) List all of the inputs

5) Multiply the importance rating by the effect score, then add across

Which Steps Matter?

What Are We Doing?

Acme's Six Sigma team mapped the company's pricing process

The formal process comprised of six main steps

The Cause and Effect Matrix is a systematic way to judge the impact of each step on the process's customers as a prelude to prioritizing underlying problems and identifying their causes.

The Six Sigma Process The Six Sigma

Pricing Process The process got

bogged down as pricing analysts rooted around for information they should have already obtained from the sales staff

What Are We Really Changing? Our analysis showed that the higher the

list price, the deeper the mean discount tended to be.

This was showed to be true especially for large transactions

Without doubt, Six Sigma emphasizes the importance of linking financial gains to projects undertaken.

Why it Should Change This suggested that

improve average prices by differentiating the pricing guidelines for transactions of different sizes precluding deep discounts

Sources http://www.isixsigma.com/new-to-six-

sigma/getting-started/what-six-sigma/ http://

web.ebscohost.com.ezaccess.libraries.psu.edu/ehost/detail?vid=3&hid=12&sid=59cb3746-94ac-4d5b-9585-aaad30eb6af1%40sessionmgr13&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=16951608

Terms Six Sigma Scope Defect DMAIC Quality

Cause-and-Effect Diagram

Process Adjustments

Process Control Charts Quality Assurance