1. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification

2. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 1 Why Project Identification And Selection Is So Critical Management should only apply resources to activities that support the business objectives Management should only spend time on activities that support the business objectives Poor project identification selection is the #1 reason for poor Sigma Lean results Project success is the true validation of your Sigma Lean endeavor Maintaining a project pipeline is the engine for Sigma Lean success!

3. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 2 Project Identification Continuum Discrete projects are identified and chosen by Black Belts Management brainstorms and identifies projects Projects are selected from a brainstormed list and mapped back to the strategic goals of the firm Strategic goals are determined and projects flow down from these goals based on available data Strategic goals are determined and a statistical relationship is used to describe how the strategic goal is improved by completing the project Worst Best

4. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 3 Five Pathways To Identify Project Clusters And Projects These five pathways attempt to identify all possible project cluster and project opportunities to ensure none are missed. 1.Balanced scorecard/CT Flow Down 2.Operational assessment 3.Performance to plan 4.Financial analysis 5.Organic bubble up ideas These pathways are workshops that are executed at various levels in the organization (i.e. Executive, Business Unit, Manager, Associate) to identify potential project clusters as well as specific project opportunities.

5. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 4 These 10 steps ensure: A process is followed to make sure strategic goals of the organization drive the project selection All resources are used more effectively because of deliberate goal alignment The right people are selected and have senior management support People are accountable Projects are tracked Benefits are realized Pathway #1-10 Steps For Balanced/Strategic Flow Down Process Measure progress against baselines and targets 10 Assign projects to Black Belt, Green Belt and Teams. Structure Leadership and Teams (Select and train Black Belt, Green Belt, Team candidates) 9 For vital few inputs (Xs), create a project charter to focus on moving the output (Y) in the desired direction 8 Relate the inputs to the output (determine the equation that validates a true relationship of input to output) 7 Populate the “Critical To" (CT) Flow Down with available data 6 Brainstorm (using C&E/affinity diagram) the inputs (Xs) that drive output (Y) 5 Identify gap between goal and current measurement – Prioritization for Action 4 Establish current baseline for the measurement 3 Determine the measurement of the goal (measurement of Y) 2 Identify Strategic Goals (Ys) 1 ExplanationStep

6. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 5 Operating Income (Y) 300 350 400 450 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Operating Income (MM) 380MM 2004 Actual 2003 Actual 2004 Average = Y (current performance) Pathway #1 (Step 1): Identify Strategic Goals Y (strategic goal) = Increase Operating Income to compete with industry leaders

7. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 6 Operating Income Inventory 10.2% SG&A 44.0% Shrink 12.4% Cost of Goods 19.3% Y Pathway #1 (Step 2): Determine The Metrics For The Goal Key Business Drivers Metrics for the Goal (Y), Operating Income: Y will be measured using financial database information … Benefits Travel Workman’s Compensation Wages … SG&A (Selling, General, and Administrative) Expenses is a high level measure comprised of many factors which impact operating income.

8. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 7 y 4 : Cost of Goodsy 3 : Shrinky 2 : SG&Ay 1: Inventory Pathway #1 (Step 3): Determine The Current Baseline Establishing the current baseline helps understand where the biggest opportunities are for improvement. 19.3%Current 12.4% Baseline 10.2%44.0% 2004 Actual 2003 Actual 2004 Objective …

9. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 8 Pathway #1 (Step 4): Identify Gap Between Goal And Baseline 19.3%12.4%10.2%44.0% Current: 16.5% 9.5%8.8%38.5% Goal: Understanding the Performance Gaps help us pick the areas with maximum improvement potential and thus our likely project areas of focus. 2004 Actual 2003 Actual 2004 Objective … y 4 : Cost of Goodsy 3 : Shrinky 2 : SG&Ay 1: Inventory

10. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 9 Pathway #1 (Step 5): Brainstorm The x’s That Drive The y The suspected factors influencing sub Goal y 2 are x 1, x 2, x 3, x 4 … Use Sigma Lean tools to determine the potential x’s y 2 : SG&A The Black Belt will quantitatively identify and validate the x’s which drive this y.

11. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 10 Pathway #1 (Step 6): Gather Available Data And Populate The CT Flow Down Strategic Goal Business Drivers Drivers Drill Down Project (s) Shrink Inventory Cost of Goods SG&A Slips, Trips, and Falls Other Deli Workman’s Compensation Front End Cuts Wages Travel Benefits 44% 24.8% 26.5% 1.9% Strains/ Sprains 79.3% 11.5% 7.3% Workman’s Compensation impacts a large amount of the SG&A Expenses Project focus could link to many aspects of Workman’s Compensation Slips, Trips, and Falls in the Front End of the stores could impact a significant amount of Workman’s Compensation expenses … Produce Bakery Operating Income … … 19.3% 10.2% 2.1% 12.8% 9.6% 6.1% 100%

12. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 11 Pathway #1 (Step 6): Populate The Results In The CT Flow Down Strategic Goal Business Drivers Drivers Drill Down Project (s) 24.8% 26.5% 79.3% Project Impact.44 x.248 x.265 x.793 x 100% = 2.3% This implies that if we improve Slips, Trips, and Falls in the front end of the store, we can ultimately impact the operating income for the company. Operating Income SG&A Workman’s Compensation Front End Slips, Trips, and Falls 44% 100%

13. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 12 Pathway #1 (Step 7): Relate The Output “Y” To The Factors (x’s) Perform a quantitative analysis that validates the suspected relationship between the inputs (x’s) and the output “Y” Slips, Trips, and Falls Cuts Strains/ Sprains Other 1.9% 79.3%11.5% 7.3%

14. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 13 Pathway #1 (Step 8): Develop A Project Charter That Will Improve The Y For A Few Of The Vital x’s 79.3%1.9%11.5%7.3% Baseline: 40.0% Goal: Project Charters are written at an actionable level to fix a defect – Not to solve world hunger all at once. Slips, Trips and Falls CutsStrains/Sprains Other

15. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 14 Realize Project Results Conduct Projects Ensure projects deliver results and realize financial benefits using project tracking system Validate process improvement Put control mechanisms in place for sustaining process improvements Hold Process Owners accountable for controlling and sustaining process improvements Pathway #1 (Step 9): Develop Necessary Infrastructure Conduct Sigma Lean Projects 12 Steps – Improving Process Performance Off-Target Variation On-Target Center Process Reduce Spread X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Waste

16. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 15 Pathway #1 (Step 10): Measure Progress Against Baselines And Dashboard Targets Revisit the original goals at every level of the organization to assure: - Benefits are aligned with company’s goals - Projects are focused on significant improvement opportunities - Projects are structured to ensure hard, realized benefits - Appropriate controls are implemented and followed (audits in place) - Dashboards provide leaders line-of-sight visibility to performance against business goals Slips, Trips and Falls CutsStrains/Sprains Other 300 350 400 450 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Operating Income (MM)

17. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 16 Pathway #2: Steps To Conduct An Operational Assessment Financial and product data are analyzed to determine what facility will afford the greatest opportunity Within the facility, financial and product data are analyzed to segment the top 3-5 products that afford the greatest opportunity Value Stream Maps are created for the top products to identify areas of waste and sources of variability Flow Charts are created in selected areas of the Value Stream and Data Analysis (Sigma Lean tools) to further refine areas of waste and sources of variability Project Clusters and Projects will be identified as: - Cycle Time Reduction- Waste Reduction - Inventory Reduction- Variability Of A Particular Operation - Lead Time Reduction- Design Of A New Product (DFSS) - Store Floor Space Recovery- Yield Improvement Through Design - Setup Time Reduction Of Experiments - Standard Operation Setup - Walking Time Reduction

18. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 17 Pathway #3: Performance To Plan Historical Budgets are reviewed and the performance to plan for these budgets are analyzed Identify ongoing Program/Project performance to plan discrepancies Areas showing large gaps in performance are opportunities to identify project clusters and projects When executing this pathway, to prevent chasing false opportunities, we need to understand whether: -The budgeted targets are too far of a stretch -How your budgeted targets compare to your industry

19. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 18 The financial data of the Company is analyzed to determine whether your financial measures are in line with your industry, for example: -Inventory turns -DSO -Workman’s Compensation -Accounts Payable -Accounts Receivable -Etc. Gaps in these areas are potential opportunities for project clusters and project identification Pathway #4: Financial Analysis

20. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 19 Pathway #5: Organic Bubble Up Organic project definition -A project that may not be strategic in nature, but is a good idea and will save money or improve customer/employee satisfaction Brainstorming and soliciting peoples ideas are the means by which Organic Bubble Up projects are identified Based on the Project Selection Continuum, this pathway by itself is the least desirable method Examples of organic projects -Overpayment of taxes to U.S. Government – Savings: $10M total -Improve measurement system for general merchandise inventory in stand-alone drug stores – Savings: $44M/year -Recover cost of open box items – Savings: $1.2M/year -Standardize printers, copiers, scanner, and fax machines

21. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 20 Need For Data The amount of data available will determine the depth to which we can drill down to actionable Black Belt (or Green Belt) projects In many of these pathways, we may only be able to identify Project Clusters where there is limited data Further data will need to be collected prior to actionable Black Belt (or Green Belt) projects

22. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 21 Method I – Theoretical Model Lean Six Sigma Filter Pass OK Project Candidate 1 Project Candidate 2 Project Candidate 3 Project Candidate 4 Project Candidate 5 Project Candidate 6 Project Candidate 7 Project Candidate 8 Project Candidate 9 Project Candidate 10 OK Not OKOK Not OK OK Not OKOK Pass X X X Fail Strategic Alignment Filter Economic Impact Filter Steering Committee Selects Projects

23. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 22 Project Candidate 1 Project Candidate 2 Project Candidate 3 Project Candidate 5... etc. PROJECT FUNNEL Project Ranking Projects that pass the filters are added to the Project Funnel Prioritized Projects

24. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 23 Project Selection: Prioritization Strategic Goals Potential Projects WEIGHTED TOTAL SCORE PROJ 1 PROJ 2 PROJ 3 P 11 = 9 / 3 / 1 / 0  W i P ij PROJ N..... P 1M = 9 / 3 / 1 / 0............. i =1 M Goal. A B C DEF 7 5 8 5 10 7 Prioritized Projects Weight

25. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 24 Final Thoughts – What Makes A Good Project We do not already know the solution to the problem The “defect” we are addressing is well-defined Data is available or can be collected Specific and measurable goals are set There is a specific exit criteria Defects occur on a regular basis – The problem is recurring Solving the problem will have revenue or cost impact “When management cannot come up with projects, management just doesn’t get it!” – Don Linsenmann, Dupont

26. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 25 Project Selection Checklist Project Selection 11. Is data collection relatively easy? 8. Can starting and end points for the process be defined? 2. Is there a pre-determined solution to the project goals? 3. Does this project conflict with other projects? 4. Does this project have a high probability of success? 5. Is project linked/aligned to goals of the business? 6. Does the cost reduction opportunity meet the goals of the business? 14. Can you define the defects in the process? 13. Are resources available and supportive for this project? 12. Is there a “good” measurement system in place? 10. Are metrics available or could they be developed quickly at low cost? 9. Does the Champion have functional control of the impacted process? 7. Has the project been properly scoped? 1. Has the project been done already (or in progress)? No Yes Project Selection Criteria

27. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 26 Detail For Project Selection Criteria 1.Has the project been done already (or in progress)? We don’t want to “take credit” for a project which has been completed. Additionally, if an improvement effort is underway, one would have to determine if the Sigma Lean Methodology would be a better fit. 2.Is there a pre-determined solution to the project goals? This is referred to as a “just do it” project. If we (truly) know the solution, we do not need the Sigma Lean Methodology and resources applied. 3.Does the project conflict with other projects? We want to ensure that by solving one problem, we do not worsen a related or non-related process (the law of unintended consequences). Often a secondary metric can be used to monitor the “other” desired process outcomes. 4.Does the project have a high probability of success? If we feel comfortable with all elements of the Project Selection Checklist, it is likely the project will be successful. The first project is a training project – Success on this project will set the stage for future project successes by the Black Belt or Green Belt and their teams.

28. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 27 5.Is project linked/aligned to goals of the business? Sigma Lean is all about improving business performance – Therefore we will focus projects on those items which are important to Business Leaders. All projects should have line of sight to business unit goals. The CTS Flow Down is a key tool to drive this linkage. 6.Does the cost reduction opportunity meet the goals of the business? The project financials need to meet specific goals and guidelines developed by the Financial Functional Leader(s). Any deviations to these goals are to be approved prior to project initiation. 7.Has the project been properly scoped? Project scope is one of the largest challenges faced in project selection. Consider many of the elements in the project selection checklist when scoping the project (cost reduction opportunity, functional control, etc.). Ideally, the Champions will conduct initial data analysis and high level mapping to drive the proper scope. Regardless of these efforts, the scope often changes during Define and Measure as we characterize the process. 8.Can starting points and end points for the process be defined? This will indicate what is within the scope of the project and what is not and also help to visualize the process from a high level Detail For Project Selection Criteria

29. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 28 9.Does the Champion have functional control of the impacted processes? Functional control by the Champion (Black Belt/Green Belt and Teams) is critical in order to influence and “connect” with impacted personnel. As the functional control is minimized, so to is the probability of success. Larger scoped, cross business unit projects are best led by an Executive Champion responsible for all impacted areas and generally not suited for training projects. Use caution with travel and team meeting (phone vs. face-to-face) logistics. 10.Are metrics available, on Primary Metric – Y, or could they be developed quickly at a low cost? Sigma Lean uses data to make decisions. If data is not available on the Primary Metric – That element we are trying to improve (cycle time, number of injuries, etc.) – we need to ask... A) How difficult will it be to obtain data? and B) At what cost? If the answer is relatively easy and inexpensive, proceed. If not, we should “park” the project until such data is available. 11.Is data collection relatively easy? Does the process complete at least one cycle weekly? Again, data is required in order to assess our baseline early in the project. Likewise, once we implement improvements, we want to be able to collect a large enough sample to have confidence that we have truly achieved and sustained the goal (if we only collect one data point every three months, this would not be possible). Detail For Project Selection Criteria

30. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 29 12.Is there a “good” measurement system in place (on Primary Metric – Y)? We now know that we must have data, however ask yourself, “How good is the data? How much error is in our data?” This is non-scientific at this point – Our Black Belts and Green Belts will quantify in the Measure Phase. This assessment is important because often times a Black Belt (or Green Belt) needs to improve the measurement system prior to evolving to the Analyze Phase and these Black Belt (or Green Belt) projects tend to lag (“a project within a project”). 13.Are resources available and supportive for this project (Process Owner, team, Champion)? A Black Belt (or Green Belt) cannot succeed alone; they are the Team Leader “armed” with the toolset and require a solid, supportive team inclusive of Champion, Process Owner, Team Members, and Executives. It is the responsibility of the Champion to define and communicate the project business case to the Process Owner and Teams. 14.Can you define the defects in the process? Sigma Lean is a process for reducing defects. It is therefore critical to define the defects in a process. In many parts of our business, we have not established defect definitions and “specifications”. The Champion and Black Belt (or Green Belt) will need these definitions in order to calculate a baseline (Z) Sigma value. Detail For Project Selection Criteria

31. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 30 Trademarks And Service Marks Trademarks of Six Sigma Academy: Breakthrough Design SM Breakthrough Software Design SM Breakthrough Diagnosis SM Breakthrough Execution SM Breakthrough Lean ® Breakthrough Sigma Lean SM Breakthrough Six Sigma SM Breakthrough Strategy ® Breakthrough Value Services ® FASTART SM INTELLEQ TM METREQ TM SOLVING YOUR BUSINESS PROBLEMS FOR THE LAST TIME SM Six Sigma is a federally registered trademark of Motorola, Inc. MINITAB is a federally registered trademark of Minitab, Inc. SigmaFlow is a federally registered trademark of Compass Partners, Inc. VarTran is a federally registered trademark of Taylor Enterprises

32. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Project Identification And Selection Pg 31 Six Sigma Academy www.6-sigma.com US Tel: (480) 515-9501 US Fax: (480) 515-9507 International Tel: +44-1403-783456 International Fax: +44-1403-218788 8876 E. Pinnacle Peak Road, Suite 100 Scottsdale, AZ 85255