Supply Chain Chapters 3 & 8

Statistical Tools - The core of quality improvement Continued:

Firms: - Gather process performance data - Create control charts to monitor process variability - Then collect sample measurements of the process over time and plot on charts. Allows firms to: - Visually monitor process performance - Compare the performance to desired levels or standards - Take corrective action as necessary

Six Sigma Training and Certification Levels: Yellow Belt

Has a basic understanding of Six Sigma Methodology and the tools in the DMAIC problem solving process. A team member that reviews processes and process improvements in support of a Six Sigma process improvement project. A person who has passed the Green Belt certification exam but has not yet completed a Six Sigma project..

Kaoru Ishikawa

Cause and Effect Diagram, also called "Ishikawa" or "fishbone" diagram. - With this tool, the user can see all possible causes of a problem to help find the root cause.

Multilevel Bill of Materials

Level 0 (Finished Product, Independent Demand): Bicycle Level 1 (Components, Dependent Demand): Handle bars, frame, seat, etc. Level 2: (Components of components, Dependent Demand): Rim, spokes, tire needed to make wheel Level 3 (Raw Materials, Dependent Demand): 1 kg rubber, 12' Bar aluminum

Setup Time and Changeover Time Reduction

Setup Time and Changeover Time are both considered a waste as they are times when the equipment is not performing its intended function; producing product. - Setup time is the time taken to prepare and format the manufacturing equipment and systems for production. -Changeover time is 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. -Both setup and changeover are non-value added operations and the time taken should be minimized as much as possible.

Six Sigma Methodology Continued

Six Sigma has two key methodologies: DMADV Methodology: - Define --> Measure --> Analyze --> Design -->Verify: which is a data-driven quality strategy for designing products & processes. - This methodology is used when the company wants to create a new product design or process that is more predictable and defect free. DMAIC Methodology: - Define --> Measure --> Analyze --> Improve -->Control: which is a data-driven quality strategy for improving products & processes. - This methodology is used when the company wants to improve an existing business process. - DMAIC is the most widely adopted and recognized Six Sigma methodology in use.

Terms Used in MRP: Explosion

The process of converting a parent item's planned order releases into component gross requirements

Terms Used in MRP: Net Requirement

The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.

Six Sigma Methodology

There are three main foundational aspects of Six Sigma: 1. Quality is defined by the customer: Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more. 2. Use of technical tools such as 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. 3. People involvement: Six Sigma follows a structured methodology, and has defined roles for the participants.

(CH 8) Operations Management

Operations Management refers to the design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy. - The goal is to convert materials and labor into goods and services as efficiently and effectively as possible, while also controlling costs to maximize profits. This entails managing the process of creating the goods and services. - The nature of how Operations Management is carried out varies by company and depends on the nature of the products and/or services in the portfolio.

Manufacturing Strategies

Companies develop a manufacturing strategy aligned to the production strategy discussed in Chapter 3. The strategy is established to satisfy customer demand while balancing manufacturing costs and inventory levels.

Manufacturing processes: Continuous Flow

Consistent manufacturing of the same product. (gasoline, chemicals, laundry detergent, PC Boards) - Highly inflexible - Very limited product variety - Very high volume - High fixed costs - Low variable costs - Very short lead time Manufacturing Strategy: MTS

Six Sigma Quality

DPMO = (Number of Defects /[(Opportunity for a defect) x (Number of units)] answer x 1,000,000 = DPMO

Capacity Planning

Determining the amount of capacity required to produce a good or service in the future.

Production Planning Strategies - Demand Side: Counter-seasonal product mix

Develop a product mix with offsetting seasonal trends to level the required production capacity

The Bill of Materials (BOM)

A document that shows an inclusive listing of all component parts and assemblies making up the final product.

Six Sigma Training and Certification Levels: Black Belt

A full-time quality professional who has a thorough knowledge of Six Sigma philosophies and principles, and possesses technical and managerial process improvement / innovation skills. Leads the Six Sigma project team and problem-solving efforts. Identifies projects and selects project team members. Trains and coaches project teams. A Black Belt is typically mentored by a master black belt

Capacity Planning: Resource Requirement Planning (RRP)

A long-range capacity plan used to check whether aggregate resources (i.e., labor and manpower) are capable of satisfying the Aggregate Production Plan.

Capacity Planning: Rough-Cut Capacity Planning (RCCP)

A medium-range capacity plan used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available.

Terms Used in MRP: Firmed Planned Order

A planned order that can be frozen in quantity and time so that the MRP computer logic cannot automatically change when conditions change. Established by the Planner or Supply Chain Manager to prevent system nervousness. This can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders.

Terms Used in MRP: Gross Requirement

A time-phased requirement prior to netting out on-hand inventory and lead-time

Assemble-to-Order (ATO)

Assemble-to-Order (ATO) is a manufacturing strategy where final products are produced quickly as ordered by customers. This enables products to be customized to a certain extent. - The ATO strategy requires that the main sub assemblies for the product be completed and inventoried along with the final assembly parts. - Once an order is received, the product is assembled quickly and shipped to the customer. - This is often called a "Postponement" Strategy - Similar to MTS, demand forecasting and inventory management are key processes to a successful ATO process. The main sub assemblies and final configuration parts must be forecasted and inventoried. -Most high tech products with customization available (computers, audio systems), Quick serve restaurants, and individualized products are ATO.

The Seven Elements of LEAN Manufacturing

1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time, & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement (Kaizen)

Multilevel Bill of Materials

A comprehensive listing of all the components used in a product, the parent - component relationships along with the quantity of each component required for corresponding parent (the planning factor). - presented in a hierarchical manner to the lowest acquisition level

Manufacturing processes: Job Shop

creates a custom product for each customer. (artist, craftsman) - High flexibility - Very high product variety - Very low volume - Low fixed costs - High variable costs - Very long lead time Manufacturing Strategy: ETO/MTO

Short-Range Supply Chain Planning

detailed planning process for components and parts to produce the master production schedule based on the demand plan -Example: daily production plan for every line and model at the Tennessee Plant -Includes ordering of raw materials, scheduling of human resources, delivery from suppliers, alignment of multiple production lines to feed the final assembly -Includes planning for transportation and warehouse needs -Execution based plans

Manufacturing Strategies: Make to Stock (MTS)

features economies of scale, large volumes, long production runs, low variety, and multiple distribution channels

Manufacturing processes: Assembly Line

has standard products with a limited number of variations moving through stages of production (Cars, Televisions, Smart phones) - Somewhat inflexible - Limited product variety - High volume - Moderate fixed costs - Moderate variable costs - Short lead time Manufacturing Strategy: ATO/MTS

Implementing Software Systems: 2 Types of Software Implementation 2. Single Software Solution

implement the desired applications from a single vendor. Resolves integration and data issues but individual system functionality may be reduced

Manufacturing Strategies: Engineer to Order (ETO)

is used when products are unique and extensively customized for the specific needs of individual customers

Manufacturing Strategies: Assemble to Order (ATO)

is when sub assemblies are made, stocked to forecast, but products are not assembled until customer order is received

Mid Term Business Planning

long-term focus, provides the company's direction and objectives for the long term (3-10 years) - the plan states the company's objectives for profitability, growth rate, and return on investments as determined by company executives and board - Executive Management gathers input from the various organizational functions such as finance, marketing, operations, and engineering, on what is needed to achieve the objectives - It determines the long term capital investment plan, business investments and funding requirements

Manufacturing processes: Batch

manufactures a small quantity of an item in a single production run (Milk and other processed food, clothing) - Somewhat flexible - High product variety - Low volume - Moderate fixed costs - Moderate variable costs - Long lead time Manufacturing Strategy: MTO/ATO

Capacity Planning: Production Capacity

the maximum amount an organization can complete in a given period of time based on the resources available. Excess (or insufficient) capacity prevents the firm from manufacturing efficiently. Organizations must balance the production plan with capacity

Capacity (Supply Chain Planning)

the maximum amount or number that can be received or contained

Resource Planning (Supply Chain Planning)

the process of determining the required resources to effectively and efficiently produce the output required -the aggregation of all resources committed to production (space, equipment, personnel) determines the capacity to meet the demand

Terms Used in MRP: Lot Size

the required quantity of an item for ordering or production

Preparing a Material Requirements Plan (MRP): 3. Continue

to follow the above for all parts in order of the hierarchy

Supply Chain Planning in a Manufacturing Environment

uses a combination of the planning processes used across the supply chain: 1. Overall company Business Planning 2. Capacity Planning 3. Aggregate Production Planning (APP) 4. Master Production Scheduling (MPS) 5. Materials Requirement Planning (MRP) 6. Distribution Requirements Planning (DRP)

Supply Chain Planning in a Wholesale/Retail Environment

uses a smaller combination of the planning processes 1. Overall company Business Planning 2. Supply Order Planning 3. Supplier Capacity Planning 4. Distribution Requirements Planning (DRP)

LEAN History

In the 1990s, Supply Chain Management combined the following practices into the Lean Manufacturing philosophy: 1. 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. 2. Efficient Consumer Response (ECR) - a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers. 3. 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. 4. Keiretsu Relationships - cooperative coalitions with cross financial dependence involves companies throughout the value chain, remaining independent but working closely together for mutual benefit

Enterprise Resource Planning Systems (ERP)

Information system connecting all functional areas and operations of an organization, and in some cases suppliers and customers, via common software infrastructure and database

The Elements of LEAN Manufacturing (continued)

(1) Waste Reduction: - Firms reduce costs and add value by eliminating waste from the production system. - Waste encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity. - Before Waste is removed, processes are often scattered, which can negatively affect your customers - After Waste is removed, processes are more streamlined, resulting in more satisfied customers. You'll also save your organization time and money

The Elements of LEAN Manufacturing (continued)

(2) LEAN Layouts: Simplified manufacturing operation which moves people and materials when & where needed to achieve smooth product flow Have clear lines of visibility (unobstructed) with operators at one processing center able to monitor work at another. A quality or bottleneck can be quickly identified and corrected. Manufacturing cells - Sub assembly process for similar parts or components saving duplication of equipment & labor - Positioned close to the manufacturing line to feed the line directly vs building inventories to be stored

The Elements of LEAN Manufacturing (continued)

(3) Inventory & Setup / Changeover Time Reduction: Excess inventory is a waste and hides other problems (safety stock covers inefficiencies) By reducing inventory levels you can highlight production problems to be solved such as Bottlenecks, idle time, unbalanced flow... The end result is a smoother running production process with less inventory investment. Inventory takes up space and increases costs. Inventory can hide underlying problems. Lowering inventory will help to expose the hidden problems. Once the problems are detected, they can be solved.

The Elements of LEAN Manufacturing (continued)

(4) Small Batch Scheduling and Uniform Plant Loading: Production in small batches enables production to be synchronized with customer demand. It increases flexibility allowing the company to respond quickly to changes in customer demand. It can drive down costs by reducing raw materials, WIP, & finished goods inventories minimizing waste in the system. Shortens manufacturing lead time however setup / change over time must be low so that it is easy to switch from producing one product to another. Small batch scheduling can be facilitated through the use of Kanbans ("visual signal" or "card.") -Production Kanban tells a manufacturing cell to produce to refill an empty container - Withdrawal Kanban is used to tell previous cells that more parts are needed

The Elements of LEAN Manufacturing (continued)

(5) LEAN Supply Chain Relationships: 1. Eliminating waste in the supply chain by building alliances with suppliers, partners & customers to remove waste, reduce cost, improve quality and customer service by working together. 2. Customer Focused to satisfy end customer demand 3. Moving products efficiently through the system 4. Increase Supply chain visibility beyond just 1st tier suppliers to include 2nd, and 3rd tier suppliers 5. Optimize inventory levels across the supply chain

The Elements of LEAN Manufacturing (continued)

(6) 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

The Elements of LEAN Manufacturing (continued)

(7) Continuous Improvement (Kaizen): - Continuous approach to reduce costs by eliminating waste and / or improving process, delivery, and quality. - Big results can come from the accumulation of many small changes over time - KAI = CHANGE; ZEN = FOR THE BETTER CHANGE FOR THE BETTER

Classical View of Quality "99% Good" (3.8std.)

- 20,000 lost articles of mail per hour - 15 minutes of unsafe drinking water each day - 5,000 incorrect surgical operations per week -2 unsafe landings at most major airports each day - 200,000 incorrect drug prescriptions per year - 7 hours without electricity each month

The Six Sigma View of Quality "99.99966% Good" (6std.)

- 7 lost articles of mail per hour - 1 minute of unsafe drinking water every 7 months - 1.7 incorrect surgical operations per week - 1 unsafe landing at most major airports every 5 years - 68 incorrect drug prescriptions per year - 1 hour without electricity every 34 years

MAnufacturing Resource Planning (MRP II)

- A computer based system that creates detailed production schedules using real-time data - coordinates the arrival of materials with the availability of machine and labor - MRP II is used widely by itself in manufacturing environments, but is also a module of more extensive enterprise resource planning (ERP) systems

Chase Production Strategy

- Adjusts capacity to match demand. Firm hires and lays off workers to match output to demand. Finished goods inventory remains consistent based on worker productivity. Works well for make-to-order firms - Many product variants, short production runs, final assembly focused

Level Production Examples

- Average the demand for the entire time forecasted - Must have fully productive / whole workers - The final period inventory > or = safety stock level - Other inventory may be above / below safety stock

Implementing Software Systems: Implementation Challenges:

- Cost - Committed resources - Time - Staff inertia - Inability to change processes to leverage system capabilities - Top management commitment - Data conversion - "Go Live" methodology

Enterprise Resource Planning (ERP)

- ERP is an information system connecting all functional areas & operations of an organization via common software infrastructure and database. It ties together the specialized system needs with a common, shared centralized database - All areas are updated simultaneously as data is updated - eliminates duplicate data entry and inconsistent information across an organization - Large implementations came from Y2K concerns - A key enabler to efficient operations, access to critical information, speed and flexibility

Distribution Requirements Planning (DRP)

- Establish requirements for the distribution network and balances warehouse capacity with production plans -A time-phased finished good inventory replenishment plan in the distribution network determining the need to replenish inventory at branch warehouses. - DRP is an extension of the MRP system and ties physical distribution to the manufacturing planning and control system

Key elements necessary for an effective DRP:

- Forecasted demand by Distribution Center (DC) - Current inventory levels by DC - Targeted safety stock by DC - Established replenishment quantities - Replenishment lead times

Basic Production Strategies (3):

1. Level Production Strategy 2. Chase Production Strategy 3. Mixed Production Strategy

LEAN History

- In the 1910's, Henry Ford's mass production line was the first manufacturing breakthrough by using continuous assembly and flow systems that made parts find their way into finished products - In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and U.S. supermarket distribution systems to form the basis of what is now known as LEAN. - The term LEAN was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World. (Based on Toyota)

Production Planning Strategies - Supply Side: Fluctuating Inventory Levels

- Increase inventories - build stock in advance of demand in order to use available capacity - Decrease inventories - temporarily reduce inventory below normal safety stock levels during peak demand periods to meet customer requirements.

MRP Continued:

- Independent Demand - external demand for the final product affected by trends, seasonal patterns, & general market conditions. - Dependent Demand - the calculated internal demand for subassemblies and component parts based on the demand of the final product and the planning factor of each part - Planning factor - Number of components needed to produce a unit of the parent item

Responsibility - Planning Tasks and Horizon: Operations (Middle-Management)

- Intermediate-Range (6-18 months) - Sales & production planning - Long lead time components - Setting employment, inventory, and subcontracting objectives - Operating and financial plans

The MRP requires the following information: Continued

- Lead time - duration between order release and receipt - Lot size - the required quantity of an item for ordering or production. Must plan in multiples of the lot size (e.g. if the lot size is 5 then orders can be 5, 10, 15, etc) - Planning factor - Number of components needed to produce a unit of the parent item - Safety Stock level - minimum quantity of stock planned to be in inventory each period

Mixed Production Strategy

- Maintains stable core workforce while using short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand fluctuations. Works well for make-to-stock firms with custom options, seasonal businesses. - Base models with options, project oriented / seasonal business, basic skill sets

LEAN

- NOT a tool box of methods, ideas, or methodologies - LEAN is a culture - LEAN provides value for customers through the use of the most efficient resources possible - LEAN is a standard in many industries - LEAN often results in: - Large cost reductions - Improved quality - Increased customer service

Relationship of TCM to Manufacturing Strategy

- Procurement and Production costs per unit go down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows) - Inventory and Warehousing costs per unit go up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.) - Transportation costs per unit go down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)

Chase Production

- Production each period near that period's demand - Must have fully productive / whole workers - Each period inventory > or = safety stock level

Level Production Strategy

- Relies on a constant output rate over an extend period of time based on worker productivity while varying inventory and backlog according to fluctuating demand. Works well for make-to-stock firms - High capital investment, long production runs, Minimal product variants

Structure of ERP Systems: Central Database (with MAster Data)

- Sales and Marketing - Customre Relationship Management - Human Resources - Operations - Logitics - Supplier Relation Management - Engineering R&D - Accounting and Finance

Objectives of Production Planning Strategies:

- Satisfy demand - Manage capacity efficiently - Manage inventory levels - Minimize cost: - Labor - Inventory - Plant and Equipment - Workforce

Manufacturing Strategies: Objectives

- Satisfy demand - Manage capacity efficiently - Manage inventory levels - Minimize cost: - Labor - Materials - Plant and Equipment

Responsibility - Planning Tasks and Horizon: Operations (Managers, Supervisor, Foremen, etc.)

- Short-Range (up to 3-4 months) - ordering - scheduling - producing - delivering

Production Planning - Time Fencing

- The Master Production Schedule (MPS) is the core operating plan of a business. Changes in the MPS can cause major changes in the detailed production schedule and material plan thereby creating inefficiency and even instability throughout the organization - To address the impact from changes to the MPS, many companies have adopted a time fencing policy separating the planning horizon into: 1. Firmed Time Period: From the current date out several weeks into future. - A Firmed Time Fence is established as the period when changes can no longer be made by the planning system. Changes during this period must be reviewed and approved by the Production Manager or an authorized person. 2. Planned Time Period: From the end of the Firmed Time Period to the end of the planning horizon. - The planning system is free to create or make changes to planned orders in this time period. The changes are constrained by long lead time components, capacity and the demand plan.

Production Planning Strategies - Supply Side: Change Capacity

- Vary production output through overtime or idle time - Vary work force size by hiring or layoff - Using part-time workers - Subcontract work

Supply Chain Planning is usually hierarchical and can be divided into 3 broad categories:

1. Long-Range (Strategic Plan) 2. Intermediate-Range (Business Plan) 3. Short-Range

Production Planning Strategies - Demand Side: Influence Demand

- to align with production capacity - Pricing - Advertising - Promotions

Responsibility - Planning Tasks and Horizon: Top Management

-Long-Range (3-5 years) -R&D -New market/product family plans -Capital investments -Facility expansions

Closed Loop MRP System

-System for production planning and inventory control. Synchronizes the purchasing of materials with the master production schedule - The system feeds back information about completed manufacture and materials on hand into the MRP system, so that these plans can be adjusted according to capacity and other requirements -The system is called a closed loop MRP because of its feedback feature to address capacity, etc.

Supply Chain Management Continued

-The objective is to balance supply and demand such that the financial and customer service objectives of the company are achieved. -Operations managers are continuously involved in planning operations and resources to balance capacity and output

Developing the Production Plan

1. Gather the demand for each product by period covered by the planning horizon. 2. Compare to the available capacity for each period in planning horizon. Develop the capacity plan. 3. Identifying constraints / risks which may influence the plan. 4. Determining the labor and material requirements to achieve the production plan. 5. Calculate the production costs each product (labor, materials, overhead). 6. Develop the detailed Materials Requirements Plan for execution.

Six Sigma Training and Certification Levels: Brown Belt

A Six Sigma Green Belt who has passed the Black Belt certification examination but has not yet completed their second Six Sigma project

Six Sigma Training and Certification Levels: Green Belt

A Six Sigma trained individual that can work as a team member on complex project and also lead small, carefully defined Six Sigma projects. On complex Six Sigma projects, green belts work closely with the Black Belt team leader to assist with data collection and analysis, and to keep the team functioning through all phases of the project.

Terms Used in MRP: Scheduled Receipt

A committed order awaiting delivery for a specific period

What is Six Sigma?

A quality management process: - Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. - The goal of Six Sigma is to attain near quality perfection - less than 3.4 Defects Per Million Opportunities (DPMO) (99.99966%) - Pioneered by Motorola in 1987, it is a statistics-based decision-making framework designed to make significant quality improvements in value-adding processes - Especially useful in manufacturing with a large number of parts

Capacity Planning: Capacity Requirement Planning (CRP)

A short-range capacity plan used to check the feasibility of the Material Requirements Plan.

Terms Used in MRP: Planned Order Release

A specific order for a specific item and quantity to be released to the shop or to the supplier.

Preparing a Material Requirements Plan (MRP): 1. Start with the part that is the highest level on the Bill of Materials.

A) Beginning Inventory (BI) - gross requirements + scheduled receipts = projected on hand inventory. B) Projected on hand inventory for week 1 becomes beginning inventory for week 2 and so on. C) When your projected inventory drops below the safety stock (SS) you need to enter a scheduled receipt that week. Based on the lead time (LT) you go back the correct number of weeks to enter the same amount as the planned order release. Remember to make sure your quantity is compatible with the required lot size (Q). Continue the process for all the weeks on this part.

Production Plan Use -> Available to Promise (ATP)

Available-to-Promise (ATP) Quantity - - The difference between confirmed customer orders & the quantity the firm planned to produce (amount available to other orders). - It enables the firm to respond to customer order inquiries, based on planned product availability. - It generates available quantities of the product along with expected availability dates. - It represents "the uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer order promising

Intermediate-Range Supply Chain Planning

Business Plans (financial, operational, product) establishing annual goals and timing of key events (entering new market, new product introduction) -Example: VW plans to produce 1,000 cars at its Tennessee plant -Normally 12-18 months, focused on quarterly goals - basis for detailed operational plans and setting individual objectives - Plans are at the product category level, indicating introduction and discontinuation dates -Plan are impacted by lead times

Engineer to Order (ETO)

Engineer-to-Order (ETO) is a manufacturing process in which the component is designed, engineered, and built to customer specifications only after the order has been received. - It is an evolution of a Make-to-Order supply chain to include customization at the component level - May include some common components but the use and configuration are different every time. The essence of ETO is building a unique product every time. - Project Management is a key skill for profitable success In ETO, reputation for quality and innovation are key to success. - Complicated technology solutions such as operations centers, stadiums, amusement rides are ETO.

Philip Crosby

He introduced the four absolutes of quality: 1. The definition of quality is conformance to requirements - do it right the first time 2. The system of quality is prevention. - take preventative action 3. Performance standard is zero defects. - commit to eliminate defects 4. The measure of quality is the price of non-conformance . - the loss from poor materials and workmanship - He referred to the measure of quality as the "price of nonconformance" and argued that organizations choose to pay for poor quality.

W. Edwards Deming

He stressed management's responsibility for quality, and he developed 14 points to guide companies in 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

Six Sigma Training and Certification Levels: Master Belt

Is a career path. A Master Black Belt has successfully led ten or more teams through complex Six Sigma projects. A proven change agent, leader, facilitator, and technical expert in Six Sigma. A seasoned individual with a proven mastery of process variability reduction, and waste reduction. Acts as an advisor to executives, and a coach and mentor on projects that are led by black belts and green belts. Functions as the keeper of the Six Sigma process, and can effectively provide Six Sigma training at all levels

Terms Used in MRP: Parent

Item generating demand for lower-level components.

Waste Reduction - The Five-S's

Japanese S-Term -> English S-Term: 1. Seiri - Sort - Keep only necessary items in the workplace, eliminate the rest 2. Seiton - Straighten - Organize and arrange items to promote an efficient workflow 3. Seiso - Shine - Clean the work area so it is neat and tidy 4. Seiketsu - Standardize - Schedule regular cleaning and maintenance 5. Shitsuke - Sustain - Self Discipline. Maintain good work habits 6. Safety has been added as a key standard of workplace management -these were originally Japanese words relating to industrial housekeeping

LEAN Manufacturing and the Environment

LEAN Green Practices: - Lean practices reduce waste and lead to Lean Green practices: - Eliminating waste in production and SCM eliminates wasting natural resources - Sustainable management processes get adopted - Focus on improving environmental management performance. - Implement ISO14000 processes

LEAN and Six Sigma:

LEAN and Six Sigma complement one another; - LEAN focuses on eliminating wastes and improving efficiency - Six Sigma focuses on reducing defects and variations LEAN + Six Sigma = Efficient and Accurate

Terms Used in MRP: Planning factor

The number/quantity of each component or material needed to produce a single unit of the parent item

Make-to-Order (MTO)

Make-to-Order (MTO) is a manufacturing strategy that allows customers to purchase custom products to their specifications. - The MTO strategy only manufactures the end product once the customer places the order. Lead time for customer delivery is longer and customers pay for the ability to customize - Raw materials are carried in inventory with a few common sub assemblies. - Highly configured products such as computer servers, aircraft, ocean vessels, houses, bridges, custom furniture and custom tooling are MTO. - Often includes services with the product (architect, designer, technology expert)

Make-to-Stock (MTS)

Make-to-Stock (MTS) - literally means to manufacture products for stock based on demand forecasts, a push supply chain. - The accuracy of the forecasts is the key to inventory management and controlling costs. Accurate demand forecast limits excess inventory and loss sales from stock outs. - Most equipment intensive manufacturing (automobiles), commodities (processed foods, sundries) and low value products are MTS. A key issue of MTS is to balance inventory and demand. Companies struggle to make the correct product at the correct time in the correct quantities as forecasts are inaccurate at the detailed specification level. Data analytics and current market feedback are key strategies to improve this business process.

The key principles of TQM are:

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

Statistical Tools - The core of quality improvement

Natural Variations - Expected and random (can't control) Assignable Variations - Have a specific cause (can control) Variable Data - Continuous (e.g., weight) Attribute Data - Indicate some attribute such as color and satisfaction, or beauty

Production Planning Strategies

Primary purpose is to establish the production methodology that will satisfying customer demand while balancing production costs and inventory through workforce management.

Uniform Plant Loading (i.e., level-loading the plan)

Problem: - Demand exceeds capacity at points in the planning horizon. - Matching the production plan to follow demand contributes to inefficiency and increases costs. Uniform Plant Loading: - Planning production to capacity in earlier time periods to create inventory to meet demand in later time periods. - Enables efficient use of resources. (Plant, machinery, human) - Requires accurate demand plans with long forecast periods.

Terms Used in MRP: Projected On-Hand Inventory

Projected closing inventory at end of a period. Beginning inventory minus gross requirements, plus scheduled receipts plus planned receipts from planned order releases.

Joseph Juran

Quality Planning, identify internal / external customers & needs: - Develop products satisfying those needs. - Mangers set goals, priorities, and compare results. Quality Control, determine what to control: - Establish standards of performance. - Measure performance, interpret the difference, take action. Quality Improvement, show need for improvement: - Identify projects for improvement. - Implement remedies - Provide control to maintain improvement.

Terms Used in MRP: Pegging

Relates the gross requirements for a component part to the planned order releases of the parent item, so as to identify the source(s) of the item's gross requirements. Pegging can be thought of as active where-used information.

Long-Range Suppl Chain Planning

Strategic Plans that involve planning for investments in markets, facilities and major equipment purchases - Multi-year plans establishing overall business goals driven by top executives - Example: VW Group wants to be the #1 car company in the world - All divisions, department complete a plan to achieve the overall goal -Normally 3-5 years, top down direction

Structure of ERP Systems

Suppliers: Microsoft, SAP Customers: Infor, Oracle

Preparing a Material Requirements Plan (MRP)

The MRP requires the following information: 1. The independent demand information 2. Parent-component relationships from the Bill of Materials 3. Inventory status of final product & components. 4. Lead time and lot size for each component (buy) and Time required for each process step (make) 5. Safety Stock amount for each level of the BOM MRP Output -> Planned order releases (purchase and produce)

Material Requirements Plan (MRP)

The MRP requires the following information: 1. The independent demand information 2. Parent-component relationships from the Bill of Materials 3. Inventory status of final product & components. 4. Lead time and lot size for each component (buy) and Time required for each process step (make) 5. Safety Stock amount for each level of the BOM MRP output -> Planned order releases (purchase & produce)

Material Requirements Planning (MRP)

The Short-range plan from a computer-based materials management system that calculates the exact quantities, need dates, and planned order releases for sub-assemblies and materials required to manufacture a final product -The MRP requires the following information: 1. The independent demand information 2. Parent-component relationships from the Bill of Materials 3. Inventory status of final product and components 4. Lead time and lot size for each component (buy) and Time required for each process step (make) 5. Safety Stock amount for each level of the BOM -MRP output - planned order releases (purchases and produce) -Basic MRP relies on information provided and ignores capacity and shop floor conditions. (Utopian plan)

Sales & Operations Planning (S&OP)

The annual business plan simulates the business for a year - 18 months. It establishes the near term objectives aligned to the mid term plan. It covers all areas of the company (sales, marketing, R&D, operations, production, sourcing, service, finance, etc.) to provide management with the knowledge of actions needed to be taken to achieve the objectives - it utilizes the Resource Requirements Plan (RRP) - Capacity Plan - It utilizes the Aggregate Production Plan (APP) - Manufacturing Plan - It is the benchmark established to drive decisions making throughout the year

Manufacturing Strategies

The choice of strategy determines which lead time the customer experiences

Aggregate Production Plan (APP)

The intermediate to long range plan that translates annual business plan & demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility. - The planning horizon of APP is AT LEAST 1 YEAR and is usually rolled forward by three months every quarter - Sets the production output requirements, workforce needs and inventory plans - Enables the firm to see its capacity requirements and address gaps (Resource Requirements Planning) - Determines the production strategy the firm will use

Master Production Schedule (MPS)

The intermediate-range plan that provides a detailed breakdown of the aggregate production plan, listing the exact end items to be produced by a specific period. - More detailed than APP & easier to plan under stable demand - Breaks down months into weeks / days - Planning horizon is shorter than APP, but longer than the lead time to produce the item so product is completed within the plan - For the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g., skilled labor or professional service) is balanced with demand

Manufacturing Strategies (continued)

The manufacturing strategies include: 1. Make-to-Stock (MTS) 2. Assemble-to-Order (ATO) 3. Make-to-Order (MTO) 4. Engineer-to-Order (ETO)

Available-to-Promise (ATP)

To calculate Available-to-Promise quantities, Need to know: - Beginning inventory (BI) - Production schedule (firm and tentative) (MPS) - Confirmed Customer Orders (CCO) 1. Determine period 1 total availability = BI + MPS 2. Subtract CCO = period 1 Available before look ahead 3. Determine period 2 availability = MPS - CCO - If MPS > CCO move to next period - If MPS < CCO, ATP = 0 and subtract the difference from previous period Available amounts. 4. Each subsequent period follow step 3 until complete 5. Once availability for all periods have been calculated, ATP for each period has been determined Tip: Start with period 8 and work back to period 1

Total Cost of Manufacturing (TCM)

Total Cost of Manufacturing (TCM) is the complete cost of producing and delivering products to your customers. It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product. It includes all costs associated with: - Production and -Procurement activities - Inventory and Warehousing activities - Transportation activities TCM is generally expressed as a cost per unit for each product.

Total Quality Management

Total Quality Management (TQM) is a management philosophy based on the principle that every employee must be committed to maintaining high standards of work quality in every aspect of a company's operations. TQM is a combination of quality and management tools designed to increase business and reduce losses resulting from wasteful practices. Six Sigma can be an integral part of Total Quality Management.

Terms Used in MRP: Time Bucket

Unit of time / time period used in MRP, e.g., days, weeks, months

Updated Waste Reduction -> DOWNTIME

WASTE -> Description Defects - Anything that does not meet the acceptance criteria Overproduction - Production before it is needed, or in excess of customer requirements. Providing a service that is not needed. Waiting - Elapsed time between processes when no work is being done 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 Inventory - Excess products or materials not being processed Motion - 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

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. Sampling is less time-consuming than testing every unit but can result in errors: 1. 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) 2. Buyers's Risk: The buyer accepts a shipment of poor-quality units because the sample quality level did meet the acceptance standard (type II error)

Production Planning Strategies - Demand Side: Back-Ordering during high demand periods

accept that demand is greater than supply capabilities, supply when available.

Terms Used in MRP: Safety Stock

a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. Over planning supply versus demand can be used to create safety stock.

Resources (Supply Chain Planning)

a source of supply, support, or aid, especially one that can be readily drawn upon when needed

LEAN and Six Sigma: Six Sigma

is a quality philosophy that emphasizes a commitment toward excellence, encompassing suppliers, employees, and customers

LEAN and Six Sigma: LEAN

is an operating philosophy of waste reduction and value enhancement and was originally created as the Toyota Production System (TPS) by key Toyota executives.

Terms Used in MRP: Components

parts demanded by a parent

Implementing Software Systems: 2 Types of Software Implementation 1. Best-of-breed

pick the best application for each individual function. Challenge - integrating the software, data duplication, support resource requirements, training.

Manufacturing Strategies: Make to Order (MTO)

products are not produced until customer order is received

Total Quality Management (continued)

quality gurus (experts) all contribute to the basic framework - W. Edwards Deming - is widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model. - 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, and focus on prevention, not inspection. - Joseph Juran - defined quality as "fitness for use". He developed the concept of the cost of quality. - Kaoru Ishikawa - developed one the first tools used in quality management - the cause and effect diagram, which is also called the "Ishikawa" or "fishbone" diagram.

Preparing a Material Requirements Plan (MRP): 2. For the next part in the hierarchy

the Planned order releases you entered above become the gross requirements for the next part in the order. If there is a planning factor remember to multiply by the factor to determine the gross requirement. 1. complete the chart for the following steps a-c above

Supply Chain Planning

the element of supply chain management responsible for determining how operations will best satisfy the requirements created by the Demand Plan

Production Capacity (Supply Chain Planning)

the maximum amount an organization can complete in a given period of time based on the resources available