Supply Chain Ch. 8

Traditional (push) approach

Supply chains work as "push" systems and inventory is carried to cover up problems

Value

The inherent worth of a product as judged by the customer, and reflected in its selling price and market demand -Any activity that increases the market, form or function of the product/service

Voice of Customer (VOC)

-In-depth process of capturing internal and external customer's expectations, preferences, likes and dislikes.

LEAN History

-1910s Henry Ford created the mass production line w continuous assembly systems that made parts find their way into finished products -1940s Taichii Ohno and Shiego Shingo created TPS, which incorporated Ford's production system and other techniques to form the base -Coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World

Cost of Good Quality

-Appraisal costs -Prevention costs

Philip Crosby

-Coined the phrase "quality is free" (which is also the title of his book) as defects are costly. -He introduced the concepts of zero defects -Focus on prevention and not inspection. -Demonstrated what a powerful tool the cost of quality could be to raise awareness of the importance of quality. -Referred to the cost of quality as the "price of nonconformance" -Argued that organizations choose to pay for poor quality.

VOC capture

-Customer Interviews -Market Surveys -Focus Groups -Customer Specifications -Observation -Warranty Data -Field Reports -Complaint Logs

Quality is defined by the customer

-Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more. -It is vital to provide what the customers need to achieve customer satisfaction.

Two key Six Sigma methodologies

-DMADV -DMAIC

Examples of internal failure costs

-Defective product or material that cannot be used, sold, or repaired, and the costs associated with correction of these defects. -Unnecessary work or inventory resulting from errors. -Activities required to establish the root causes of product or service failures.

Joseph Juran

-Defined quality as "fitness for use". -He developed the concept of the cost of quality. -Quality planning -Quality control -Quality improvement

Loading problem

-Demand exceeds capacity at points in the planning horizon. -Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including excess inventory or shortages of inventory

Quality control

-Determine what to control -Establish standards of performance. -Measure performance, interpret the difference, take action.

Kaoru Ishikawa

-Developed one the first tools in the quality management process, the cause and effect diagram, which is also called the "Ishikawa" or "fishbone" diagram. -He is also known as the father of quality circles and helped bring this concept into the mainstream. -He was a proponent of continuous customer service

Pull approach

-Each stage in the supply chain requests quantities needed from the previous stage -No excess inventory is generated -Reducing inventory levels can also uncover production problems

Examples of prevention costs

-Establishment of specifications for incoming materials, processes, products, and services -Creation of quality plans -Development, preparation, and maintenance of quality training -Creation and maintenance of the quality system

LEAN Supply Chain relationships

-Firms develop lean supply chain relationships with key customers and key suppliers. -Both customers and suppliers get connected in ways that allow them to easily exchange information, demand data, and the visibility of status -Mutual dependency and benefits occur among these partners. -Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service

Waste reduction

-Firms reduce costs and add value by eliminating waste from the production system

W. Edwards Deming

-Widely considered the father of TQM. -He is the creator of the Plan-Do-Check-Act model. -Stressed management's responsibility for quality

5 Whys

A questioning technique for identifying the root cause of a problem. -By repeatedly asking the question "Why" (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem (i.e., the underlying factors or causes of an event). -Used in the "Analyze" phase of the six sigma DMAIC

Ladder analogy

Halfway up a ladder 5 steps about it asking "Why" and go down it by asking "How" -5 Whys and 5 Hows are used in conjunction with cause and effect diagram

Small batch scheduling

LEAN manufacturing wants to reverse large batches -Facilitates producing at the same rate as customer demand -Creates smooth workload as production can be synchronized with customer demand, creating a pull system

Straighten

Organize and arrange items to promote an efficient workflow

Role of workers

Perform tasks and actively pursue company goals: -Improve production process -Correct quality problems -Monitor quality Work in teams (ie Quality Circles)

Non-value added process

Process steps that take time, resources, or space, but do not transform or shape the product/service

Value Added process

Process steps that transform or shape a product or service which is eventually sold to a customer

After waste reduction

Processes are more streamlined, resulting in more satisfied customers. -Save time and money

Before waste reduction

Processes are often scattered, which can negatively affect your customers

TQM quality gurus/experts

W. Edwards Deming Philip Crosby Joseph Juran Kaoru Ishikawa

Examples of appraisal costs

-Testing, evaluating, and inspecting the quality of incoming materials, process setups, and products, against agreed upon specifications. -Quality assessment and approval of suppliers. -Performing audits to confirm that the quality system is operating properly.

Six Sigma History

-The concept of Six Sigma was originated by Motorola -Motorola developed the concept in the 1980's, created the methodology, and copyrighted it as well. -Motorola has documented > $16 Billion in savings as a result of Six Sigma. -Thousands of companies globally have adopted Six Sigma

Disadvantages of ETO

-The cost of poor quality can be very high. -The warranty costs, and the cost of rework to replace an item in a complex assembly, can have a serious negative effect on profit margins.

Goal of Six sigma

-To attain less than 3.4 Defects Per Million Opportunities (DPMO) -A structured and data-driven approach to drive a near-perfect quality goal, i.e., "Zero defects"

Crosby's 4 absolutes of quality

1. Quality is conformance to requirements 2. The system of quality is prevention. 3. Performance standard is zero defects. 4.The measure of quality is the price of nonconformance

Six Sigma Methodology

1. Quality is defined by the customer 2. Use of technical tools 3. People involvement

Components of LEAN manufacturing

1. Waste reduction 2. LEAN layouts 3. Inventory, setup time, and changeover time reduction 4. Small batch scheduling and uniform plant loading 5. LEAN supply chain relationships 6. Workforce empowerment 7. Continuous improvement

Philosophies/practices of LEAN

1990s Supply Chain Management -Quick response -Efficient Consumer Response (ECR) -Just-in-Time (JIT) -Keiretsu Relationships

Assemble-to-Order (ATO)

A manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent. -Requires that the basic parts for the product are already manufactured but not yet assembled -Once an order is received, the parts are assembled quickly into the finished product which is then sent to the customer

Six Sigma

A quality management process -Focuses on improving the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business

5 Hows

A questioning technique for drilling down into the details of a potential solution to a known problem. -It is designed to bring clarity and refinement to a solution and arrive the root solution(best solution).

Efficient Consumer Response (ECR)

A strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers and manufacturers

Shine

Clean the work area so it is neat and tidy

Manufacturing strategies

Companies must develop a manufacturing strategy that suits the type(s) of products that they produce, their customer's expectations, and their strengths. -Vary significantly depending on the product and/or the customer requirements. -Must suit a company's strengths is essential for establishing and maintaining an effective supply chain.

DMAIC

Define Measure Analyze Improve Control -A data-driven quality strategy for improving products and processes -Used when the company wants to improve an existing business process -Most widely adopted -Defines the steps practitioner follows

Waiting

Elapsed time between processes when no work is being done

Pareto Analysis

For presenting data in an organized fashion, indicating process problems from most to least severe

Continous improvement

Kaizen Continuous approach to reduce process, delivery, and quality problems, such as machine breakdown problems, setup problems, and internal quality problems

Sort

Keep only necessary items in the workplace, eliminate the rest

Role of Supplier

LEAN builds long-term supplier relationships -Partnerships with suppliers. -Improving process quality. -Sharing information. The goal is to have the fewest number of high-quality suppliers possible without unnecessarily increasing risk

Components of LEAN

Lean manufacturing Total Quality management Respect for people

Lean manufacturing

Natural fit for SCM bc all the LEAN goals/objectives help to facilitate an effective and efficient supply chain -Satisfying internal customer demand -Communicating demand forecasts and production schedules up the supply chain -Quickly moving products in the production system -Optimizing inventory levels across the supply chain -Increasing the value, capabilities and flexibility of the workforce through cross-training -Extending collaboration and alliances beyond just 1st tier suppliers and customers to include 2nd and 3rd tier suppliers and customers as well

Carbon neutral

Offsetting the carbon footprint of a firm's operations

Operations Management

Refers to managing the process to create goods and services, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs -Varies by company -Depends on the nature of the products or services in the portfolio

Advantage of MTO

Relieves the problems of excessive inventory that is common with the Make-to-Stock strategy.

Standardize

Schedule regular cleaning and maintenance

Flow Diagram

Sequence of movements or actions of people or things involved in a complex system or activity

Five S's

Sort/Seiri Straigten/Seiton Shine/Seiso Standardize/Seiketsu Sustain/Shitsuke

Quick response

The rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale

Changeover time

The time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product -Non-value added operation

Setup time

The time taken to prepare and format the manufacturing equipment and systems for production -If it can be minimized, the difference will be more time available to produce -Non-value-added operation

Scatter diagrams

The values of two variables plotted along two axes, to reveal any correlation present

Benefits of LEAN waste reduction

Typically only 1-10% of the process steps or activities are value added -Reduced cycle times -Greater throughput -Better productivity -Improved quality -Reduced costs Improves customer satisfaction and provides the company w a competitive advantage

Cause and Effect Diagrams

Used to aid in brainstorming and isolating the causes of a problem

Check sheets

Used to determine frequencies for specific problems

Cause and effect diagram

With this tool, the user can see all possible causes of a problem to help find the root cause.

Six Sigma Training and certification levels

Yellow Belt Green Belt (Rutgers offers) Brown Belt Black Belt Master Black Belt

Quality planning

-Identify internal / external customers and needs -Develop products satisfying those needs. -Mangers set goals, priorities, and compare results.

Total Quality Management (TQM)

-A management philosophy based on the principle that every employee must be committed to maintaining high standards of work in every aspect of a company's operations. -A combination of quality and management tools which are designed to increase business and reduce losses resulting from wasteful practices

Appraisal costs

-Associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications

Small batch scheduling and uniform plant loading

-Produce every product as quickly as possible and at the same rate as customer demand -In real world, material availability, labor availability and setup or changeover time influences the scheduling of large batches

LEAN Green practices

-Reduce the cost of environmental management -Lead to improved environmental performance. -Increase the possibility that firms will adopt more advanced environmental management

Prevention costs

-Related to the design, implementation, and maintenance of the quality management system. -They are planned, and experienced before actual products or materials are acquired or produced.

People involvement

-Six Sigma follows a structured methodology. -It is important that all Six Sigma team members are assigned specific well-defined Six Sigma "roles" with measurable objectives. -A company must involve all its employees in the Six Sigma program, and provide opportunities and incentives for employees to focus their talents and ability to satisfy customers. -All employees are responsible to identify quality problems

Use of technical tools

-Statistical quality control. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company. -All employees should be trained to use the seven tools of quality. -Six Sigma is concerned with the permanent fix to quality problems and seeks to identify and correct the root cause of the problem

Malcolm Baldrige National Quality Award

-Stimulate firms to improve -Recognize firms for quality achievements -Establish guidelines so that organizations can evaluate their improvement and provide guidance to others

Challenges of MTS

1. Avoid having excess inventory. -Companies that operate with a MTS model tend to hold more inventory just in case they need it, therefore, they struggle to ensure that inventory levels don't get out of control

Deming's 14 points for quality improvement

1. Create constancy of purpose to improve product and service 2. Adopt the new philosophy 3. Cease dependence on inspection to improve quality 4. End the practice of awarding business on the basis of price 5. Constantly improve the production and service system 6. Institute training on the job 7.Institute leadership 8. Drive out fear 9.Break down barriers between departments 10. Eliminate slogans and exhortations 11. Eliminate quotas 12. Remove barriers to pride of workmanship 13.Institute program of self-improvement 14.Put everyone to work to accomplish the transformation

Malcolm Baldrige Categories

1. Leadership 2. Strategic Planning 3. Customer and Market Focus 4. Information and Analysis 5. Human Resource Focus 6. Process Management 7. Business Results

Lean + Six sigma

= Speed and Accuracy

Continuous customer service

A customer should continue receiving service even after receiving the product

Six sigma

A disciplined, statistical-based, data-driven methodology for identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and in business processes -Originally developed by Motorola -complement to LEAN

Hisotgrams

A graphical display where the data is grouped into ranges

Make-to-Order (MTO)

A manufacturing strategy in which manufacturing starts only after a customer's order is received. -Strategy creates additional wait time for the customer to receive the product, but allows customers to purchase products that are customized to their specifications.

Engineer to Order (ETO)

A manufacturing strategy in which the product is designed, engineered, and built to the customer's specifications after receipt of the order -A more dramatic evolution of Make-to-Order strategy. -Involves building a unique product every time. There may be components that are common from one product to another, but the finished product is different each time.

Role of Management

Create the culture change needed for LEAN to succeed: -Provide an atmosphere of cooperation -Empower workers to take action based on their ideas -Develop incentive systems to recognize and reward LEAN behaviors

Project process (aka Job Shop)

Creates a customer product for each customer. High customization -Very high product variety -Very low volume -ETO/MTO strategy -Very long customer lead time

Waste categories

DOWNSTREAM Defects Overproduction Waiting Non-utilized talent Transportation Inventory Motion/Movement Extra-processing

DMADV

Define Measure Analyze Design Verify -A data-driven quality strategy for designing products and processes -Used when the company wants to create a new product design or process that is more predictable and defect free

Risks of acceptance sampling

Less time-consuming than testing every unit but can result in errors: -Supplier's Risk -Buyer's Risk

Jack Welch

Made Six Sigma famous when he made it central to his successful business strategy at General Electrics in 1995 -Reported $200MM in savings in the first year of implementation (1996) alone

Workforce commitment

Managers must support LEAN Manufacturing by providing subordinates with the skills, tools, time, and other necessary resources to identify problems and implement solutions

Make-to-Stock (MTS)

Means to manufacture products for stock based on demand forecasts. -Push system. -Since accurate forecasts will prevent creating excess inventory and avoid stockouts, the critical issue is how to forecast demands accurately.

Examples of MTS

Most daily necessities such as foods, sundries, and textiles

LEAN layouts

Move people and materials when and where needed, and as soon as possible -Are very visual with operators at one processing center able to monitor work at another -Manufacturing cells

Buyer's Risk

The buyer accepts a shipment of poor-quality units because the sample falsely provides a positive result against the acceptance standard (type II error)

Supplier's Risk

The buyer rejects a shipment of good-quality units because the sample quality level did not meet the acceptance standard (type I error)

Total cost of manufacturing (TCM)

The complete cost of producing and delivering products to your customers -Incorporates both fixed and variable costs used in the manufacturing, storage and delivery of the product. -Expressed as cost per unit

Goal of LEAN

The elimination of waste and the minimization of the amount of all resources used in the operation of a company -It is NOT a tool box of methods, ideas or methodologies it is a philosophy/culture

Manufacturing management

The management of all the processes which are involved in manufacturing.

Implementing LEAN and Six Sigma

The most successful implementations begin with LEAN, followed by the more technical Six Sigma statistical tools used to resolve process problems.

Non-utilized talent

Underutilizing people's talents, skills or knowledge. De-motivating the workforce by not asking for input or recognizing success

Transportation

Unnecessary movement of materials or products

Motion/Movement

Unnecessary movement of people. Multiple hand-offs

Extra-processing

Unnecessary steps in a process. Redundancies between processes. More work or higher quality than required by the customer

Internal failure costs

When the product or service does not meet the designed quality standards, and are identified before the product or service is delivered to the customer.

External failure costs

When the product or service does not meet the designed quality standards, but is not detected until after the product is delivered to the customer.

Defects

Anything that does not meet the acceptance criteria

Differences between LEAN and Six Sigma

-Goal of LEAN is the elimination of waste and the minimization of the amount of all resources (including time) used in the operation of a company -LEAN achieves its goals by using less technical tools such as value stream mapping, LEAN Layouts, Continuous Improvement, and Respect for People -Six Sigma focuses on the elimination of defects and the reduction of variations -Six Sigma uses technical tools such as Root Cause Analysis, Statistical Process Control, and DMAIC.

Examples of external failure costs

-Handling and responding to customer complaints. -Failed products that must be replaced or services that are repeated. -Repair of returned products and products still in the field. -Handling and investigation of rejected or recalled products, including return transportation costs.

Benefit of ATO

-Hybrid strategy -Attempting to combine the benefits of both Make-to-Stock and Make-to-Order strategies, getting products into customers' hands quickly while allowing for some customization to take place.

Benefits of small batch scheduling

-Increases flexibility allowing the company to respond to changes in customer demands more quickly -Throughput times in manufacturing go down and work-in-process inventory goes down, reducing costs and eliminating or minimizing waste in the system

Common characteristics of manufacturing processes

-Intermittent processes -Repetitive processes

Cost of Poor Quality

-Internal failure costs -External failure costs

Major Manufacturing Strategies

-Make-to-Stock (MTS) -Make-to-Order (MTO) -Assemble-to-Order (ATO) -Engineer-to-Order (ETO)

Key principles of TQM

-Management Commitment -Employee Empowerment -Fact Based Decision Making -Continuous Improvement -Customer Focus

TCM includes

-Manufacturing and procurement activities -Inventory and warehousing activities -Transportation activities

Respect for People

-Must exist for an organization to be at its best -Flatter hierarchy than traditional organizations. -Ordinary workers given greater responsibility. -Supply chain members work together in cross functional teams.

Uniform plant loading

-Planning up to capacity in earlier time periods to meet demand in later time periods. -Also called "front-loading" the plan or "leveling" the plan. -Production schedule is frozen in the up-front time period (i.e., month) -Helps suppliers better plan production

Manufacturing cells

-Process similar parts or components saving duplication of equipment and labor -Are often U-shaped to facilitate easier operator and material movements ex= Sandwich shop

Quality improvement

-Show the need for improvement -Identify projects for improvement. -Implement remedies -Provide control to maintain improvement.

Seven Tools of Quality Control

-Used by workers to identify and correct quality problems. 1. Check Sheets 2. Histograms 3. Pareto Analysis 4. Cause & Effect Diagrams 5. Flow Diagram 6. Control Charts 7. Scatter Diagrams

Intermittent processes

-Used to produce a large variety of products with different processing requirements in lower volumes. -Project process or Batch process

Repetitive processes

-Used to produce one, or a few, standardized products in high volumes -Line process or Continuous process

Goal of Control Charts

-Visually monitor process performance -Compare the performance to desired levels or standards -Take corrective action as necessary

Water analogy for inventory

-Water represents inventory. When the water us high, you don't see the rocks beneath the water, so you may not know that they're there -Rocks represent hidden obstacles, problems and issues -Lowering inventory will help to expose the hidden problems. Once detected, the problems can be solved. -End result is a smoother running supply chain w less inventory investment

Acceptance sampling

-When a shipment is received from a supplier, a statistically significant representative sample is taken and measured against the quality acceptance standard. -The entire shipment is assumed to have the same quality as the representative sample that was taken.

Examples of MTO

Appropriate for highly configured products such as aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory.

Cost of Quality

An approach that supports a company's efforts to determine the level of resources necessary to prevent poor quality, and to evaluate the quality of the company's products and services. -Any cost that would not have occurred if quality was perfect, contributes to the cost of quality. -Helps a company determine the benefits and savings generated by potential process improvements. -Divided into Good Quality and Poor Quality

Just-in-Time (JIT)

An inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs

LEAN

An operating philosophy of waste reduction and value enhancement. It was originally created as the Toyota Production System (TPS) by key Toyota executives -complement to six sigma

Setup time and changeover time reduction

Considered a waste as there are times when the equipment is not performing its intended function...producing product

Increasing volume effects on transportation

Costs go down but level off at high volumes as the shipping container gets filled to capacity and another container must be used

Increasing volume effects on manufacturing and procurement

Costs go down due to economies of scale. -Generally step function applies as more capital is required to produce

Increasing volume effects on inventory and warehousing

Costs go up

Control Charts

Graph to study how process changes over time -Natural variations (expected or random you can't control) -Assignable variations (specific cause you can control) -Variable data (continuous) -Attribute data (color, satisfaction or beauty, etc)

Waste

Encompasses wait times, inventories, material and people movement, processing steps, variability any other non-value-adding activity

Large batches

Exacerbate the bullwhip effect as production creates an uneven workload -Makes a pull system impossible because production isn't synchronized w customer demand -Throughput times in manufacturing go up, and work-in-process inventory goes up, creating more waste (ie. Snake swallowing large meal)

Inventory

Excess products or materials not being processed

Kanbans

Facilitates small batch scheduling -Means "signal" or "card" in japanese and is used for communication (ie visual signal) between workstations -Authorize production/movement of materials to the next workstation -Can use a computer softward like ERP system

The Role of Workers, Management and Suppliers

Goal is not to reduce the number of people in an organization, it is to use people resources more wisely

Continuous process

Inflexible process. High capital investment. Used to manufacture such items as gasoline, laundry detergent and chemicals -Very limited product variety -Very high volume -MTS strategy -Very short customer lead time

Keiretsu Relationships

Involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit

Batch process

Manufactures a small quantity of an item in a single production run -High product variety -Low volume -MTO/ATO/MTS strategies -Long customer lead time

Overproduction

Production before it is needed, or in excess of customer requirements. Providing a service that is not needed

Inventory reduction

Some inventory may be necessary but excess inventory is a waste -Excess inventory takes up space and costs money to hold, maintain, protect, secure and insure -Ties up financial capital which could be used for other aspects of the business -Reducing inventory can free up capital and reduce holding costs. -There is less likelihood of waste being created by obsolescence, expiry, spoilage or damage with lower inventory levels

Line process

Standard products with a limited number of variations moving on an assembly line through stages of production -Limited product variety -High volume -ATO/MTS strategy -Short customer lead time

Sustain

Stick to the rules. Maintain and review the standards

Manufacturing

To process or make raw materials or components into a finished product, especially by means of a large-scale industrial operation, i.e., mass production. -Involves the entire process of converting the raw material(s) or the component(s) into a finished goods item. -Includes the machines used, the personnel involved, inventory handling, warehousing, etc.