QHSE PERFORMANCE METRICS AND

IMPROVEMENTS, WHICH PROVIDE BOTTOM-LINE

BENEFITSBY FORREST W. BREYFOGLE III

This is how QHSE does really enhance business!

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QHSE PERFORMANCE METRICS AND IMPROVEMENTS, WHICH

PROVIDE BOTTOM-LINE BENEFITS

FORREST W. BREYFOGLE III

Often work in the Quality, Health, Safety, and Environment functions are not appreciated relative to an overall organization’s �����������Businesses may have QHSE strategic statements, but these often good-sounding directives can become silo activities that lose out in their

performance measurements. Linkage �����������������������������������that can be achieved from improving QHSE performance metrics. This article will use environmental issues that are generally associated with the “GreenInitiatives” to illustrate the concepts; however, the methodology applies equally to other QHSE functions.

Green InitiativesWhy is Green Important?• It is the right thing to do.• ~����������������� ����• Improves the future.• Helps business success. The fourth bullet is the one that can be the largest concern for organizations. If there is not�������������������������������������� ����tougher to implement.

We have all seen organizations state a position that they will be undertaking Green initiatives.

.. will become a leader in Green procurement.• To achieve carbon neutrality.• To engender a “spirit of sustainability”….• To raise environmental sustainability

management levels through unique management systems.

Vision statements are brief, catchy inspirational, and believable. These ��� ������������������������������

FORREST W. BREYFOGLE III

CEO and President Smarter Solutions, Inc smartersolutions.com

execution to more pressing day-to-day priorities.

Of the four QHSE components, Quality, Health, and Safety problems can have ��������"�������������������������������������this relationship for the environmental component of QHSE is often not as apparent. Many businesses treat efforts in the environmental function as marketing and image factors that are of a minor importance to the bottom line.

This article will illustrate a methodology where QHSE functions, especially environmental activities, can be systematically integrated with other business functions in both operation procedures and their

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(�������� ������������������������������Strategies are an integrated overarching concept of how the business will meet its objectives.

#��������������������������������������� �an organizational strategy?

• Drives Sales (revenue) up. • Reduces operating costs.• Reduces inventory.• Improves employee loyalty.

What is needed is a system that introduces Green Initiatives that are positive or neutral ���������������������������������������inventory, and employee loyalty, while improving the environmental and other Green impacts from the organization.

However, organizations often list possible Green initiatives being adopted by other organizations and pick the ones they would like to do. Others can be more successful when they look for Green initiatives that align with their organizational performance will include the ��� ������������ �������������������<������ �����+�������������������������������������initiatives.

Alignment of Green within Organizational Structure A system for creating Green alignment with other organizational needs is Integrated Enterprise Excellence (IEE) as described in Figure 1.

(����������������������@jj����������management are:

1. =���������������������2. Measure performance in key functions3. Assess performance for weakness4. j�������������������5. Identify strategies to improve performance6. and more…….

Let’s assume that the organizational mission and vision (step 1) is adequate. An organizational IEE value chain diagram <�����+���������������� ������������measures of success (satellite metrics) and businessfunctions, where every function has ��������������� ����� ��������(30,000-ft-level metrics). An example IEE value chain is shown in Figure 2, where the rectangular boxes contain organizational functions and the oblong boxes the metrics that are to be tracked relative to quality cost and time for the functions.

INTEGRATED ENTERPRISE EXCELLENCE VIDEO

20

Develop Product Market Product Sell Product Produce &

Deliver Product

Invoice and Collect

Payment

Report Financials

Information Technology

(IT)

Human Relations (HR)

Enterprise Process

Management (EPM)

Days Sales Outstanding

(DSO)

Percent Annualized

Gain in Gross Revenue

Gross Revenue

Defective Rate

Lead Time

Developed Product Design

Quality

Product Development

Lead Time

Work in Process (WIP)

On-time Delivery

Voice of the Customer

(VOC)

Labor Relations Safety and

Environment

Legal Finance

Quote Quality

RFQ Response Acceptance

Rate

Internal Process Reworks

Product Margins

Quote Response

Time

TOC Throughput

Net Profit Margins

Existing Customer Additions

New Customer Additions

Timely Inputs

Effective Inputs

Learning and Growth

From Figure 7.1 Integrated Enterprise Excellence Volume II – Business Deployment: A Leaders’ Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Bridgeway Books/Citius Publishing, 2008

Figure 2

1. Describe vision and mission.

2. Describe value chain, including satellite-level and

30,000-foot-level metrics.

3. Analyze enterprise.

4. Establish SMART

satellite-levelmetric goals.

5. Create strategies.

6. Identify high potential improvement

areas and establish related SMART 30,000-foot-level metric goals.

7. Identify and executeprojects.

8. Assess project's completion impact on enterprise goals

9. Maintain the gain.

From Figure 4.7 Integrated Enterprise Excellence Volume II - Business Deployment: A Leaders’ Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Bridgeway Books/CitiusPublishing, 2008

Figure 1

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Transportation cost reduction• Use lower carbon impact methods (saves

money)• Less overnight shipping

Waste reduction• Reduce waste• Use less hazardous materials, more

recyclable materials

Steps 5-7 of Figure 1 describe the path for creating an enterprise business system that provides insight in management and where improvements are best applied, as documented in Integrated Enterprise Excellence, Volume II – Business Deployment: A Leaders’ Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard.1

Performance measures that could have a Green impact are highlighted in the IEE value chain shown in Figure 3.

Improving Green Performance MetricsTypical areas for Green improvement strategies are:

Reduction in energy costs• Reduce usage or self generation

Reduction of variable expenses• Reduce packing materials (less or

recyclable)

Develop Product Market Product Sell Product Produce &

Deliver Product

Invoice and Collect

Payment

Report Financials

Information Technology

(IT)

Days Sales Outstanding

(DSO)

Percent Annualized

Gain in Gross Revenue

Gross Revenue

Defective Rate

Lead Time

Developed Product Design

Quality

Product Development

Lead Time

Work in Process (WIP)

On-time Delivery

Voice of the Customer

(VOC)

Facilities

Enterprise Process

Managemetn (EPM)

Quote Quality

RFQ Response Acceptance

Rate

Internal Process Reworks

Travel Expenses

Quote Response

Time

Pack and Ship Costs

Net Profit Margins

Existing Customer Additions

New Customer Additions

Timely Inputs

Effective Inputs

Energy Use

Waste Generation

Human Relations (HR)

Learning and Growth

% Carpooling

Environment, Safety, and

Health (ESH)

Carbon Footprint

Emissions/Haz Waste

Figure 3

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Application ExampleLet now illustrate application of the described @jj������������������ �� �������������� �

• Step 1 of Figure 1Mission: Produce plastic injection molded items for consumer use.

Vision: Become a preferred, Green supplier for all major department store chains (have a branded display section in stores).

• Step 2 of Figure 1Create a Value chain with satellite and 30,000-ft-level metrics.

Focus will now be given to where the impact of Green initiatives can best be recognized �����������������������������������������value chain shown in Figure 4.

With the IEE system, performance satellite and 30,000-foot-level metrics2 are assessed for statistical stability. Performance measurements that have a recent region of stability are said to predictable. If a process is predictable, the next question would be: What is predicted?

For continuous satellite-level and 30,000-foot-level metric data, a probability plot of the raw data from the recent region of stability can provide a prediction statement, as shown in Figure 5. For this illustration, the prediction statement for the stable ������������� ������� ��������������� ������ ���������� ���������)���������80% of the months between 10.4% and 17.4%.

Figure 4

Develop Product Market Product Sell Product Produce &

Deliver Product

Invoice and Collect

Payment

Report Financials

Information Technology

(IT)

Days Sales Outstanding

(DSO)

Percent Annualized

Gain in Gross Revenue

Gross Revenue

Defective Rate

Lead Time

Developed Product Design

Quality

Product Development

Lead Time

Work in Process (WIP)

On-time Delivery

Voice of the Customer

(VOC)

Facilities

Enterprise Process

Managemetn (EPM)

Quote Quality

RFQ Response Acceptance

Rate

Internal Process Reworks

Travel Expenses

Quote Response

Time

Pack and Ship Costs

Net Profit Margins

Existing Customer Additions

New Customer Additions

Timely Inputs

Effective Inputs

Energy Use

Waste Generation

Human Relations (HR)

Learning and Growth

% Carpooling

Environment, Safety, and

Health (ESH)

Carbon Footprint

Emissions/Haz Waste

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Step 3 of Figure 1Let’s now examine the green-metric 30,000-foot-level defective rate for the function "produce and deliver product," as shown in Figure 4. For attribute 30,000-foot-level metrics, the centerline of a stable process that has a consistent

subgroup size is a measure of process performance.2 Defect rates impact Green objectives through, for example, the creation of waste, additional processing, and additional shipping return of defective units. Reducing ���������������� ������������������������through the reduction of operating cost.

Continue next page…

Figure 5

IEE Scorecard for Profit Margins

The process is predictableThe est. median is 13.940 with 80% of the occurrences from 10.426 to 17.454

201510

99

95

80

50

20

5

1

Process values

Per

cent

.

90

50

.

10

25

20

15

10

5

Month

_

X=13.94

UCL=23.24

LCL=4.64

Probability plotNormal

I-chart

P-Value 0.946AD 0.159N 42StDev 2.742Mean 13.94

Indi

vidu

al V

alue

10.4

3

13.9

4

17.4

5

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QHSE PERFORMANCE METRICS AND IMPROVEMENTS, WHICH PROVIDE

BOTTOM-LINE BENEFITS

IEE Scorecard of Defective Rate

The process is predictable since the last process change.The estimated capability is a 5.01 percent defective rate.

1361211069176614631161

8

7

6

5

4

3

Day

_

X=5.010

UCL=6.755

LCL=3.264

1 2 I-chart

Def

ectiv

e Ra

te

Frequency Of Occurrence 0.31 0.25 0.12 0.10 0.10 0.05 0.04 0.03

Percent 31.0 25.0 12.0 10.0 10.0 5.0 4.0 3.0

Cum % 31.0 56.0 68.0 78.0 88.0 93.0 97.0 100.0

Defect type OtherType 7Type 6Type 5Type 1Type 2Type 4Type 3

1.0

0.8

0.6

0.4

0.2

0.0

100

80

60

40

20

0

Pareto Chart of Defect type

Perc

ent

Freq

uenc

y of

Occ

urre

nce

Figure 6

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Step 4 of Figure 1����`�$(�<���������`��������������������Relevant, Time-based) goals for the satellite metrics. For this illustration, consider that ���������������������������������� �������is 16%, and our organization has a mean of 14%. A goal is set to reach a monthly mean of 16% within 12 months. Note how this metric is SMART and not arbitrary.

Step 5 & 6 of Figure 1Set strategies and 30,000-ft-level performance goals through an Enterprise Improvement Plan <j@Z+��������������/�������������������������for each project. Defective rates are currently at 5.0%. A goal was set to reduce the defective rate by half in 8 months.

(����������j@Z�����������������������initiatives that will both support a Green Issue and improve the organization in a positive manner.

Goal Strategy Area Project Benefits

Profit increase to 15% in 12

months

Reduce Operating

Costs

Increase pricing

Reduce Variable Costs

Reduce Energy Costs

Reduce Wast Management

Expenses

Create differenciator

Raw Material procurement

Cogeneration or Self Generation

Reduce Idle process energy

usage

Reduce Scrap

Eliminate Hazardous Waste

Change Waste materials to allow

sale or recycle

Elimnate Defect 1

Reduce customer returns

Recycle internal scrap

Reduce raw material waste (packing materials and

spillage)

Test market as a environmentally

sensitive product

Replace fossil fuel usage

Use energy more efficiently

Reduce fossil fuel usage

Save waste disposal costs

Reduce waste generation

Reduce waste generation for landfill

use raw materialmore efficiently less material needed to procure

Reduce waste generation

Reduce energy needed to remake scrap

Reduce shipping costs (Less fuel used in transport)

Possible way to generate additionalrevenue for doing the right thing!

Figure 7

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• Step 7 of Figure 1Execute the improvement project using the most appropriate approach:

• Lean Six Sigma process improvement techniques to address common-cause or special-cause problems.

• Root cause analysis when a clear special cause exists.

• Plan-do-check-act (PDCA) continuous improvement process when targeting a series of small incremental changes that could lead to improvement.

• Just go do it, for the obvious changes.

• Step 8 of Figure 1Monitor the impact on the organization. If the amount of improvement is not considered large enough, the enterprise will be analyzed for additional opportunities.

Figure 8 indicates that improvements were made to the defective rate. Figure 9 describes how the projects’ bottom-line improvement ������������������)��� ������ ����������margin was achieved within the twelve-month time-frame objective.

Figure 8

IEE Scorecard for Defective Rate

The process is predictable since the last change The estimated capability is a 2.613 percent defective rate.

1451291139781654933171

8

7

6

5

4

3

2

1

0

Day

Def

ecti

veR

ate

_X=2.613

UCL=4.873

LCL=0.353

Improved Add. Imp.Original

I-chart

27

• Step 9 Maintain the gains and continue executing the IEE business system to continue improving!

Summary

With the described approach, the following was done:

• Green target areas were not selected based on strategies grounded on intuition or emotion. Areas were selected that would ������������������

• Business performance was base-lined so that it could assess the impact of any changes.

• Strategies were set after measuring performance.

Through the described IEE approach, the environment was improved without risk to the business, noting again that a similar approach could be applied in other QHSE areas.

References

1. Integrated Enterprise Excellence Volume II - Business Deployment: A Leaders’ Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books/Citius Publishing, Austin, TX 2008.

2. Integrated Enterprise Excellence Volume III - Improvement Project Execution: A Management and Black Belt Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books/Citius Publishing, Austin, TX, 2008

3. Figures were created in this document using Enterprise Performance Reporting System (EPRS) software

Figure 9

IEE Scorecard for Profit Margins

The process is predictable since the last process change.The est. median is 16.366 with 80% of the occurrences from 14.290 to 18.443

2018161412

99

95

80

50

20

5

1

Process values

90

50

10

25

20

15

10

5

Month

_

X=16.37

UCL=22.12

LCL=10.62

1.0 2.0 Probability plotNormal

I-chart

P-Value 0.174AD 0.479N 9StDev 1.620Mean 13.94

Prof

it M

argi

n

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Email us at: info@qhsefocus.com

About Forrest W. Breyfogle III:

CEO and President of Smarter Solutions Inc.,www.smartersolutions.com.Forrest W. Breyfogle III is the creator of the Integrated Enterprise Excellence (IEE) management system, which takes lean SixSigma and the balanced scorecard to the next level. A professional engineer, he is an ASQ fellow who has served on the board of advisors for the

University of Texas Center for Performing Excellence. He received the 2004 Crosby Medal for his book, Implementing Six Sigma. In 2011, Mr. Breyfogle was selected by Quality Magazine to be Quality Professional of the year. In 2012, Missouri University of Science and Technology presented Forrest with its alumni achievement award. E-mail him at forrest@smartersolutions.com.

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