Return on Investment for a Design for Reliability Program

Return on Investment for a Design for Reliability Program
Mike Silverman, Ops A La Carte
Fred Schenkelberg, Ops A La Carte

Key Words: ROI, HALT, Assessment

SUMMARY & CONCLUSIONS 4) Cost of New Reliability Program
5) Savings from Losing a Customer
Last year we presented a paper on Design for Reliability
6) Volume
(DFR), reviewing the benefits of a good DFR program and
In this paper, we will show you how to calculate each of
included some of the essential building blocks of DfR along
these to derive your DFR ROI.
with pointing out some erroneous practices that people today
are using today.
1 SIX FACTORS USED IN ROI CALCULATION
We discussed a good DFR Program having the following
attributes:
In this first section, we will discuss the six factors you
1. Setting Goals at the beginning of the program and
need to consider when calculating your ROI.
then developing a plan to meet the goals.
2. Having the reliability goals being driven by the 1.1 Calculating Improvement in Warranty
design team with the reliability team acting as
mentors. To calculate your Improved Warranty Rate, you will need
3. Providing metrics so that you have checkpoints on to determine both your current Reliability Maturity Level as
where you are against your goals. well as your desired Reliability Maturity Level.
4. Writing a Reliability Plan (not only a test plan) to
drive your program. 1.1.1 Reliability Program Assessment (RPA)
A Good DFR Program must choose the best tools from To determine these, you will need to conduct a Reliability
each area of the product life cycle Program Assessment (RPA). An RPA identifies systemic
Identify changes that impact reliability. It ties into culture and product.
Design It also provides roadmap for activities that achieve results,
Analyze matching of capabilities and expectations. It is a cooperative
Verify approach.
Validate When do you perform an RPA?
Monitor and Control Entering into a new market
The DFR Program must then integrate the tools together Product reliability is below target level
effectively. New personnel
Since then, we have developed a method to calculate the New technology
Return on Investment (ROI) from a Design for Reliability Product design > 50% different than previous.
(DFR) program, also known as the DFR ROI. In this paper, Steps Involved in an RPA
we will discuss a method we have developed to calculate the Selecting People to Survey
Return on Investment (ROI) from a Design for Reliability Selecting Survey Topics
(DFR) program, also known as the DFR ROI. Develop a Scoring System
There are a number of factors involved in calculating the Results and Meaning
ROI for your DFR program, including: Data Analysis
1) Improved Warranty Rate (derived from your During the data analysis, we map the scores on a
Reliability Maturity Level) Reliability Maturity Matrix as shown in Figure 1.
2) Current Warranty Rate
3) Cost per Repair

Figure 1 – Reliability Maturity Matrix

We derive the improvement in warranty from the processes:
reliability maturity level. Call center processes (even if you outsource)
Support organization processes (even if you
outsource this function)
o On-site repair (service engineers/authorized
service suppliers)
Supply chain processes
o Spare parts management (usually as an
overhead)
o Spare parts logistics
Manufacturing/factory resources expensed against
above processes (usually as overhead expenses)
o Return parts testing process
Reliability/Quality engineering resources

1.4 Cost of New Reliability Program
Figure 2 – Warranty vs. Maturity by Industry
After performing the reliability assessment, you will then
1.2 Determine Current Warranty Rate put your recommendations in place and this will form the
strategy for your new reliability program. When calculating
The second step is to determine your current warranty the cost of your new reliability program, you need to consider
rate. You can get this information directly from your field the following factors.
failure rate database. Make sure to “scrub” this data so that Extra engineering support for tools
you are only including true failures rather than returns for a Consulting/test lab time for extra tests
variety of other reasons. Test equipment rental
Cost of units under test
1.3 Cost Per Repair
Cost of troubleshooting/failure analysis
Next we need to calculate the cost to repair a product in Cost of product changes/ECNs
the field when it fails. This is going to be an average cost Training
because the cost can vary depending on what the failure is.
When calculating the cost of repair, include the following

Figure 3 – Reliability Maturity Matrix with Stage 2 Highlighted

1.5 Savings from Losing Fewer Customers
2.1 Perform Assessment/Determine Maturity Level
First, calculate # of customers lost over the past year due
to reliability/quality issues. Then, calculate # of customers We performed an assessment on our client’s product – an
lost over the past year for unexplained reasons Infusion Pump – and determined that their starting maturity
If Stage 1= Multiply by 80% level was a Stage 2. The main areas we recommended they
If Stage 2 = Multiply by 60% work on to improve their maturity was to have management
If Stage 3 = Multiply by 40% take a more active role in helping to set goals and to perform
If Stage 4 = Multiply by 20% more exploratory tests rather than just testing to specifications.
If Stage 5 = Multiply by 0% Figure 3 shows the Reliability Maturity Matrix with the Stage
2 highlighted
To calculate Number of Fewer Customers Lost, first
determine average amount of revenue per customer. 2.2 Determine maturity level desired

We discussed with the management team what maturity
Then, multiply Difference in # of customers lost x
level they would like to achieve and they stated that they had a
revenue per customer
desire to be world class, or a maturity level of 5. We
explained to them that it was unrealistic to go from a Stage 2
2 DFR ROI CALCULATION
to a Stage 5 in one single product release without risking the
possibility of processes falling apart and employees leaving
When performing a DFR ROI Calculation, you should
the company. We told them to aim at a more realistic goal for
follow the following 10 steps. It is easiest to understand the
this next product release and then we could make further
steps as part of an example so I will introduce an example of a
improvements for follow-on programs. Therefore we targeted
medical product and take the reader through each of the steps.
the maturity level improvement to a Stage 3. Figure 4 shows
the Reliability Maturity Matrix with Stage 3 highlighted.

Figure 4 – Reliability Maturity Matrix with Stage 3 Highlighted

2.3 Determine your industry sector Manufacturing/factory resources expensed
against above processes = $300
The industry sector for this product is Medical and Reliability/Quality engineering resources =
Scientific. $300
Adding all these up gives us an average cost of $2K/repair
2.4 Subtract Warranty % between two levels
2.6 Calculate Cost of New Reliability Program
Next, find your industry on Figure 5 – “Warranty vs.
Maturity by Industry”and subtract the warranty rate between Next, we reviewed the changes that we proposed in the
the two stages. In our case, the difference between a Stage 3 reliability program and came up with approximate costs for
and a Stage 2 for Medical and Instrumentation products is 1.4 each of the following categories.
– 0.7 = 0.7. Extra engineering support for tools = $10K
Consulting/test lab time for extra tests = $10K
Test equipment rental = $5K
Cost of units under test = $10K
Cost of troubleshooting/failure analysis = $10K
Cost of product changes/ECNs = $20K
Training = $10K
Adding all these up gave us a total cost for the new
program of $75K.

2.7 Calculate Savings from Fewer Lost Customers

Next, we calculated the savings from fewer lost customers
using the following assumptions.
First we talked with the sales group and determined
2.5 Calculate Average Cost of Repair that the number of customers lost over the past year
due to reliability/quality issues = 3
We worked with the finance and repair service group to Then we asked the sales group how many customers
get the following numbers for Average Cost of Repair. were lost over the past year for unexplained reasons
Call center processes = $200 and they told us the number was 10. Given this, we
Support organization processes (even if you then calculated how many we expected were due to
outsource this function) = $200 reliability issues using the
Supply chain processes = $1000 o If Stage 2 = Multiply by 60%

o If Stage 3 = Multiply by 40% BIOGRAPHIES
Then we calculated Number of Fewer Customers
Mike Silverman
Lost
Ops A La Carte
o Stage 2 = 3 + (10*0.6) = 9
990 Richard Ave., Suite 101
o Stage 3 = 3 + (10*0.4) = 7
Santa Clara CA 95050
o Difference = 2
(408) 654-0499 x201
The sales team also told us that the average amount
of revenue per customer = $100K
e-mail: mikes@opsalacarte.com
Then we multiplied the difference in # of customers
lost x revenue per customer Mike Silverman is Managing Partner of Ops A La Carte, a Reliability
$200K savings from fewer lost customers Consulting firm. He has over 25 years of experience in reliability
engineering, reliability management and reliability training. He is an
2.8 Determine Volume of Shipments experienced leader in reliability improvement through analysis and
testing. Mike is also an expert in accelerated reliability techniques,
We asked the sales team the volume of shipments per year including HALT and HASS. Through Ops A La Carte, Mike has had
and the number is 5000 per year. extensive experience as a consultant to high-tech companies, and has
consulted for over 500 companies in over 90 different industries.
Mike just completed his first book on reliability entitled “50 Ways to
2.9 Calculate Repair Cost Savings Improve Your Product Reliability”. Mike has also authored and
published 20 papers on reliability techniques and has presented these
Then we calculated the repair cost savings using the around the world. He has also developed and currently teaches over
following formula: 30 courses on reliability techniques. Mike is a Certified Reliability
Repair Cost Savings = Volume * Warranty * Cost of Engineer (CRE) through American Society for Quality (ASQ). Mike
Repair is a member of ASQ, IEEE, SME, ASME, PATCA, and IEEE
Consulting Society. Mike is currently the IEEE Reliability Society
= 5000*0.7%*$2K = $70K Santa Clara Valley Chapter Chair.
2.10 Calculate ROI
Fred Schenkelberg
Then we can calculate the ROI as: 15466 Los Gatos Blvd #109-371
ROI = Repair Savings + Fewer Lost Customers - Los Gatos, CA, 95032, USA
Reliability Program Cost e-mail: fms@opsalacarte.com
ROI = $70K + $200K - $75K
Fred Schenkelberg is a reliability engineering and
ROI = $195K / year management consultant with Ops A La Carte, LLC, with areas
of focus including reliability engineering management training
3 CONCLUSION and accelerated life testing. Previously, he co-founded and
built the HP corporate reliability program, including
Today we have shown you a powerful new tool, the DFR consulting on a broad range of HP products. He is a lecturer
with the University of Maryland teaching a graduate level
ROI Calculator.With this tool, you can: course on reliability engineering management. He earned a
Justify using new techniques Master of Science degree in statistics at Stanford University in
Quantify how much improvement you will make 1996. He earned his bachelor’s degrees in Physics at the
Balance cost savings with improvements United State Military Academy in 1983. Fred is the
immediate Past-Chair of the American Society of Quality
Reliability Division, active with IEEE and IEC reliability
REFERENCES standards development teams. Fred is also the founder of the
No MTBF movement and website nomtbf.com. He is a Senior
1. Silverman, Mike. “How Reliable Is Your Product: 50 Member of ASQ and IEEE. He is an ASQ Certified Quality
Ways to Improve Product Reliability”, Superstar Press, and Reliability Engineer.
Dec 2010.

Return on Investment for a Design for Reliability Program

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