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 price
 By how much?
 Too much = lose customers
 Too little = pointless to implement

Pricing practices are hard to change
Project

Acme appointed a manager for Six
Sigma steps (DMAIC)
 Define
 Measure
 Analyze
 Improve
 Control
Define
Clarify problem
 Acme manager defined defect

 Transaction invoiced at lower price than set

Narrow scope
 One 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
performed
 Used a Cause-and-Effect Diagram

Standard statistical analysis
Improve

Recommend modifications to existing
processes (process adjustments)
 Graduated discount approvals
 Exception codes
Control

Creates controls to allow company to
sustain changes (quality assurance)
 Set up monthly reviews
 Used 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.

Which Steps Matter?
• 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
F
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-sixsigma/getting-started/what-six-sigma/
 http://web.ebscohost.com.ezaccess.libra
ries.psu.edu/ehost/detail?vid=3&hid=12
&sid=59cb3746-94ac-4d5b-9585aaad30eb6af1%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