SCM 371 E2

steps in assuring supply quality through statistical process control

1. Buyer establishes quality specifications. 2. Supplier determines own process capability. a) Understand own process capability and buyer's specifications. b) Identify special causes of variation. c) Eliminate special causes of variation. 3. Both parties compare buyer's specifications to supplier's process capability. 4. Both parties adjust the arrangement as needed: a) Negotiate with supplier for process improvements. b) Seek an alternate supplier. c) Monitor the process, with the use of control charts.

recap - sources of value provided by distributors

1. Cost-effective storage of inventory 2. Shorter delivery lead times 3. Smaller order quantities ►Additional value added by a distributor: ► A wholesaler may market the products they carry to consumers - more efficiently than a retailer can due to the wholesaler's larger quantity ► A flip side of smaller order quantities: Buying in larger batches to save on transportation (and possibly unit price too)

deming's 14 points

1. Create constancy of purpose for improving products and services. 2. Adopt the new philosophy. 3. Cease dependence on inspection to achieve quality. 4. End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier. 5. Improve constantly and forever every process for planning, production, and service. 6. Institute training on the job. 7. Adopt and institute leadership. 8. Drive out fear. 9. Break down barriers between staff areas. 10. Eliminate slogans, exhortations, and targets for the workforce. 11. Eliminate numerical quotas for the workforce and numerical goals for management. 12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system. 13. Institute a vigorous program of education and self-improvement for everyone. 14. Put everybody in the company to work toward accomplishing the transformation.

quality dimensions

1. Performance: the primary function of the product or service 2. Features: the bells and whistles 3. Reliability: the probability of failure within a specified time period 4. Durability: the life expectancy 5. Conformance: the meeting of specifications 6. Serviceability: the maintainability and ease of fixing 7. Aesthetics: the look, smell, feel, and sound 8. Perceived quality: the image in the eyes of the customer 9. Procurability: the short- and long-term availability on the market at reasonable prices

major cost categories about quality

1. Prevention 2. Appraisal 3. Internal failure 4. External failure 5. Morale

two types of quality checks

1. Sampling a) Random sampling b) Sequential sampling 2. 100 percent inspection (also called screening)

features of TQM

1. The organization must integrate quality throughout its activities. 2. Employees must commit to continuous improvement. 3. The goal of customer satisfaction and the systematic and continuous research related to customer satisfaction drive TQM. 4. Suppliers are partners in TQM.

disadvantages of the distributor supply chain model

1. The supply chain without the distributor minimizes travel distance, and adding a distributor increases distances ► a detour to the DC 2. The DC adds more handling to the product ► somebody must unload the inbound shipments and load the outbound shipments at the DC

►The tolerance is 2.000 ± .0005 inches. ►The estimated standard deviation of the process (σ) is .0016 inch. what is Cp?

= (2.005 - 1.995) / 6 x .0016 = 1.04

1. cost effective storage of inventory

A distribution center is designed to keep the cost of storage low. i. Cheaper storage space: ► A retailer may pay $200 to $300 each year to rent each m2 ► A distributor might pay only 1/4 of that for its distribution centers ("DCs", a.k.a. fulfillment centers or warehouses) ii. Less space needed for the same amount of product: ► Compared to inventory at a retailer, the inventory at a DC doesn't need to look nice for customers ► Stack items higher and use deeper shelving

service aspects

Adapt and apply quality tools such as lean principles to service operations ►Certify or partner with service providers such as marketing and media companies, law firms, and consultants ►Manage supplier relationships as more and different services are outsourced and moved offshore

the competitive view of supply management

Assumptions: ►What keeps the seller focused is the fear that another supplier might take away sales by offering better quality, better price, better delivery, or better service. ►A supplier switch is inexpensive for the purchaser. ►Multiple sourcing give the purchaser both supply security and control over suppliers

important source value provided by distributors

Cost-effective storage of inventory ►Shorter delivery lead times ►Smaller order quantities

supply chain with a distributor

Each supplier sends one truck with 400 units each week to the DC ► The distributor sends one truck each week to each retailer with 400 units of product, carrying a mixture of product from all four suppliers — 100 units from each supplier. ► The retailer only needs to carry a week's worth of supply — on average 50 units for each product.

Although distributors do not sell products to consumers directly and they do not actually make things, they provide value to the supply chain by (T/F): a) reducing the distance products travel through the supply chain. b) reducing the amount of labor needed to handle products. c) reducing the amount of storage space a retailer needs for inventory.

F, F, T

likelihood of defects

The likelihood of a defect mainly depends on two factors: 1. The tightness of the design specification: USL - LSL 2. Process spread: the amount of variation in the process captured by the standard deviation σ of the process metric ► If, in addition, the mean of the process metric is centered between the upper and lower specification limits, then the two factors above determine the likelihood of a defect.

multi-sourcing: how to divide an order between suppliers?

The practice varies widely: ►Divide equally ►Allocate by geographical coverage ► Example: use the Asian supplier for the quantity sold in Asia, and the North American supplier for the quantity sold in North America ►Place the larger share with a favored supplier and give the rest to one or more alternates

Your cafeteria is serving chicken noodle soup today, which it sources from a distributor and then warms up locally in the kitchen. The soup now sits in a large bowl and a server uses a large ladle to fill the soup into the smaller bowls handed out to the students. Which of these variables are (a) input variables, (b) outcome variables, and (c) environmental variables? 1. Outside temperature. 2. Duration that the soup was heated before being put in the bowl. 3. Temperature of the soup in a student's bowl. 4. Temperature level to which the soup is warmed up. 5. Insulation of the bowl used for storing the soup. 6. Duration that the soup bowl is open when the server inserts the ladle to serve a student

input - 2, 4, 5, 6 outcome - 3 environmental - 1

current view of quality cost tradeoff

keep defect rate as low as possible make it right the first time

What kind of quality cost is each of the following? 1. Precertifying and qualifying suppliers and processes 2. Inspecting a batch of products to ensure conformance 3. Scrap and rework 4. Warranty costs 5. Workers' loss of incentive to continually improve

prevention appraisal internal external morale

quality

quality of output -higher than competitors -same as competitors -lower than competitors ►Traditional definition of quality: conformance to specifications ►When we think of quality more broadly - total quality management: a combination of corporate philosophy and quality tools directed toward satisfying customer needs ►Quality: the ability of the supplier to provide goods and services in conformance with specifications ►Sometimes, quality may also refer to whether the item or service performs in actual use to the expectations of the original requisitioner, regardless of conformance with specifications. ► Ideal: all inputs acquired pass the use test satisfactorily

decision tree

Ø ▢ (decision node) Ø Which supplier to use? Ø If an existing supplier underperforms, do we change suppliers or work with the existing supplier to fix the issue? Ø ◯ (chance node): Whether a supplier performs well in the current purchase? Ø A dynamic program

process control charts

• Control charts plot data over time in a graph. • Horizontal axis: time • Vertical axis: process statistic from a sample • X charts — a control charts in which the process statistic on the vertical axis is the sample mean

three roles of every organization/function: customer, converter, and supplier

► Every organization is part of a chain of organizations that has suppliers to one side and customers to the other. ► Within an organization, each function is part of an internal chain and performs the same three roles to other functions or external entities. ► In the role of a converter, every organization and function need to add value and engage in process control and continuous improvement.

history of lean

►1980s: the Toyota Production System ►Two main pillars of the Toyota Production System: (1) Just-in-time: making only what is needed, when it is needed, and in the amount needed (2) Jidoka (自働化/じどうか/jidouka, i.e., automation): Building quality into the process ►Today, all industries apply lean principles and practices, from healthcare to government.

six sigma

►A Six Sigma (6σ) approach to quality focuses on preventing defects by using data to control variation and waste. ►Six Sigma quality: there are no more than 3.4 defects per million opportunities (i.e., the ppm or parts per million is no more than 3.4).

different ways to define the six sigma methods

►A philosophy based on the view that all work is processes that can be defined, measured, analyzed, improved, and controlled: Processes require inputs and produce outputs. If you control the inputs, you will control the outputs. ►A set of tools, including statistical process control (SPC), control charts, failure mode and effects analysis, and flowcharting - qualitative and quantitative techniques to drive process improvement ►A methodology with five steps: define, measure, analyze, improve, and control (DMAIC)

industry norm

►A process capability index Cp of 1.33 has become a standard of process capability. ►Some organizations require a higher value of 2.0.

capability of a process

►A process is capable when there are no special causes of variation in the process, only common causes. ►If a process is capable, then the probability of its meeting customer specifications can be consistently predicted. ►A supplier is capable if it has eliminated all special causes of variation.

sampling

►A sample is a small number of items selected from a larger group or population of items. ►Goal: secure a sample that is representative of the total population being tested, so that the results of testing the sample can be used to accept or reject the entire batch or lot ►A common technique is random sampling. Typically each unit of the product has an equal chance of being drawn for inspection.

application of TQM

►All processes must be in control and possess minimal variation to reduce time and expense of inspection. ►This, in turn, reduces scrap and rework, increases productivity, and reduces total cost. ►TQM involves the use of several tools, such as continuous improvement or kaizen, quality function deployment (QFD), and statistical process control to achieve performance improvements.

appraisal costs

►Appraisal costs: the costs of inspection, testing, measuring, and other activities to ensure conformance of the product or service to quality standards and performance requirements ►include extra handling and inventory tie-up costs if appraisal requires setting aside batches, or sending product to a separate inspection department ►Difference from prevention costs: we incur prevention costs to prevent future defects, and appraisal costs to ensure the current products and processes are in conformance.

service industry

Types of service: standard, mass customized, and highly customized ►The greatest opportunity for Six Sigma occurs in standardized services. ► Examples: credit card account services, fast-food, benefits processing, payroll, accounts payable ►Service defect: a flaw in a process that results in a lower level of customer satisfaction or a lost customer ► Easily quantified measures: lost customers, customer satisfaction ratings, and service turnaround times ►After identifying a service defect, conduct root cause analysis, then develop and implement improvement action plans.

control limits vs. specification limits

Within control limits; outside specification limits ► Low capability process ► Defects occur as a result of common causes of variation ► Outside control limits; within specification limits. ► High capability process ► Tight control limits ► Special causes of variation may not lead to defects ► Behind the idea of six sigma quality

how to find the magic number of 3.4 ppm?

►Assume in the short run the mean of the product metric is at the midpoint of the upper and lower specification limits. ►Six Sigma quality does not mean the upper and lower specification limits are six standard deviations (of the product metric) away from each other, which would give a defect rate of F(−3) ×2 = 0.0027, where F is the standard normal distribution function, or a ppm of 2,700. ►Instead, Six Sigma quality sets the defect rate such that if in the long run the mean shifts by up to 1.5 standard deviations away from the short-run mean, the new mean would still be at least three standard deviations from either specification limit. ►Hence we want a defect rate of F(−4.5) = 3.3977×10^6, or 3.40 ppm. (It only includes the tail probability on one end of the distribution.)

process capability index Csubp

►Assume the mean of the quality metric is centered between the USL and the LSL. ►We define the process capability index: Cp = (USL − LSL) / 6σ ►Cp is unitless ►The index combines the process spread and tolerance. ►The higher the Cp, the more capable the process is of producing parts that are consistently within specification. the denominator is smaller or the numerator is larger

using control charts

►Assume the process outcome follows a normal distribution (which most processes should by the central limit theorems). ►A process behaving in line with historical data will have the sample mean fall between the LCL and the UCL in 99.7 percent of the cases. ►Outside the control limits → with 99.7 percent confidence level that the process distribution has changed due to some special cause of variation

Each step in a value stream must be valuable to the customer, capable, available, adequate, and flexible

►Capable: getting the exact same result every time ►Available: performed whenever it is needed ►Adequate: sufficient capacity for the quantity needed ►Flexible: responding rapidly to changing customer desires without creating inefficiency

common causes of variation

►Common (or nonassignable or normal) causes of variation: causes that are intrinsic to the process ► Will always be there unless the process is changed ► May be related to machine, people, material, method, environment, or measurement Examples: ►machine lubrication, tool wear, or operator technique ►Natural randomness in agricultural products, e.g., no two cucumbers are of exactly of the same size and curvature, even if they are grown in the same soil, watered with the same frequency, and expose to the same sunlight ►Two patients given the same medication under the same medical circumstances may react differently.

demand and delivery

►Consumer demand: Every week each retailer sells 100 units of each supplier's product —a total of 400 units per week ►Products are delivered between stages via trucks, and each truck carries 400 units.

continuous improvement

►Continuous improvement (or kaizen/改善/かいぜん): the relentless pursuit of product and process improvement through a series of small, progressive steps ►Integral part of both lean and TQM

Cpk

►Cp works for centered processes (i.e., the process mean is at the midpoint of the specification limits). ►If the process is not centered, Cp overestimates process capability (why?). ►In this case we consider a different index . Cpk = min{(USL - u) / 3sig, (u - LSL) / 3sig} where μ is the process mean (i.e., mean of the process quality metric). ►Cpk "splits" Cp in halves and takes their minimum. for centered processes = Cpk = Cp

quality awards

►Deming Prize ► Given annually to recognize both individuals for their contributions to the field of TQM and businesses that have successfully implemented TQM. ► Established by the Union of Japanese Scientists and Engineers in 1950 to honor Dr. W. Edward Deming's contribution to the quality field ►Malcolm Baldrige National Quality Award ► Annual award that recognizes U.S. organizations in manufacturing, service, small business, health care, education, and nonprofit ► Evaluates both quality management programs and achievement of results, with heavy emphasis on organization-wide financial performance.

a framework for analyzing services II

►Direction of the service: directed toward people or toward assets ► Toward people: the ultimate user plays a major role in the specification of the service and the assessment of quality ►Production of the service: by people or equipment/technology ► Equipment: assessed suppliers on their asset capacity and state of technology ► People: (low-skill) focus on cost and efficiency; (high-skill) distinguish between levels of professional skill ►Nature of demand: Continuous, periodic or discrete ► Continuous, periodic: easier to monitor ► Discrete: may restrict personnel changes to reduce variation

disintermediation

►Disintermediation: the practice of buying directly from manufacturers and bypassing distributors, or the "middleman", in the supply chain ►When to buying directly from the manufacturer? ► the buyer's requirements are large ► the original manufacturer ships directly ► the wholesaler renders no selling effort or service

3. small order quantities

►Distributors purchase in large quantities from manufacturers, but allow the buyer to purchase in smaller quantities — breaking bulk ► E.g., a distributor might purchase 200 cases on a pallet and then allow its customer to purchase in multiples of 50 cases ►This service allows the buyer to substantially lower its inventory

supply chain without distributor

►Each week each supplier sends one truck filled with 400 units to one of the retailers. ►Each retailer receives one delivery each week, and each week the delivery comes from a different supplier. ►The retailer only needs to carry four weeks' worth of supply — on average 200 units for each product.

external failure costs

►External failure costs: costs incurred when poor-quality goods or services are passed on to the customer • returns, replacement of services • warranty costs • management time handling customer complaints • health or safety consequences from defective products • lost customer goodwill • damage to the brand image • inability to secure new customers • the penalties paid to keep existing customers ►When poor-quality parts are incorporated in assemblies, disassembly and reassembly costs may far outweigh the cost of the original part itself. ►When a defective product gets into the hands of customers or their customers, the possibility of consequential damages arises. ► Example: Because a paper roll did not meet specifications, the printer missed an important deadline, a magazine did not reach advertisers and subscribers on time, and so on.

estimating the standard deviation of the sample mean

►First calculate the sample standard deviation of the process metric ► Excel's STDEV.S function: It estimates the true (i.e., population) standard deviation of the process metric sig ►Then estimate the standard deviation of sX = sig / sqrt(n)

example: smaller order quantities

►Four suppliers — each manufacturers a unique product ►Four retail stores (buyers), each selling all four products ►Four trucks ►Two supply networks: 1) With distributor 2) Without distributor: the suppliers deliver directly to each retailer

other concepts

►Function: the action that an item or service is designed to perform ►Suitability: the ability of a material, good, or service to meet the intended functional use ►Reliability: the probability that a product will function for a stipulated period ► Complexity is the enemy of reliability: a product fails if any component fails ► If each of n components fails independently with probability p, the product fails with probability ____. ► To test reliability, one needs to consider the time it takes a product to fail (e.g., aging effect)

the goal of lean

►Goal: optimize the flow of products and services through value streams that flow 1) internally across technologies, assets, and departments to customers, and 2) externally with supply chain partners. ►The product or service flows when pulled by the next downstream step. ►Value stream: a series of steps executed in the right way and at the right time to create value for the customer

supplier reliance on buyer

►How much business should be placed with a small supplier for whom the buyer's business represents a significant portion of revenue? ►The buyer may fear that sudden discontinuance of purchases may put the supplier's survival in jeopardy. ►Rule of thumb: no more than 20 or 30 percent of the supplier's business should be with one customer.

ISO (international standards organization)

►ISO is an independent NGO with a membership of 161 national standards bodies, including the American National Standards Institute (ANSI) and the Canadian Standards Association (CSA). ►It has published more than 22,000 standards and related documents, covering almost every industry. ►The two most relevant ISO standards for supply are ISO 9001:2015 quality management and ISO 14001:2015 environmental management.

how are they different?

►In either supply chain, each supplier ships one truck each week and each retailer receives one truck each week... ►The inventory held by the buyer with the distributor is four times that without the distributor!

internal failure costs

►Internal failure costs: costs incurred within the system as a result of poor quality • returns to suppliers • scrap and rework • reinspection and retesting • lost labor • order delay costs including penalties • machine and time management • costs associated with expediting replacement materials or parts • carrying extra safety stock

control limits

►Is sample we obtain in line with past process outcomes? ►Control limits: upper control limit (UCL); lower control limit (LCL) ►Different from the upper and lower specification limits ►In X chart, we often use X - the mean of the outcome across all samples (over time) - as the center line . X double bar ►We have now estimated the mean of the sample mean (using X) and the standard deviation of the sample mean (using sX ). ►We typically set the control limits to three standard deviations away from the long-run sample mean X: ► Upper control limit for X - UCL = X + 3sX ► Lower control limit for X - LCL = X1 − 3sX ►We call the process "out of control" if the sample mean X falls outside the control limits.

current thinking

►It is difficult to find a high-quality supplier and even more difficult to create a supplier who will continually improve quality. ►Achieve continuing improvement in quality requires extensive work of various experts in the supply organization, along with the appropriate counterparts in the selling organization. ➠It is not realistic to use multiple sources for the same end item, to switch suppliers frequently, and to go out for quotes regularly.

arguments in favor of multiple sourcing

►Keep suppliers "on their toes" ►Assurance of supply or back-up arrangements - requires a low level of correlation in supply disruption ►Capable of dealing with multiple suppliers efficiently ►Avoid supplier dependence on one customer ►Obtain a greater degree of volume flexibility - easier to scale up or down ►Strategic considerations (e.g., military preparedness) ►Government regulations (e.g., because of the high risk of a single source) ►Limited supplier capacity ► Recall Caledon Concrete Mixer case (7-2): Caledon may multisource due to the limits of BGK's capacity ►Opportunity to test a new supplier ► Recall Caledon Concrete Mixer case (7-2): Caledon may dual source from IGR to test IGR's quality ►Supply market volatility ► Cost or availability

lean

►Lean thinking: a management philosophy focused on maximizing customer value while minimizing waste ►Seven forms of waste (!"/むだ/muda in Japanese): ► overproduction ► waiting ► transportation ► nonvalue-adding processes ► inventory ► motion ► costs of quality (scrap, rework, and inspection)

make it right the first time

►Making it right the first time costs the least in total. ►Make it right the first time, rather than using inspection to control quality. ►Calls for cooperation between the buyer and the supplier to achieve both improved quality and lower costs

manufacturing aspects

►Material requirements planning (MRP), manufacturing resource planning (MRP II), and just-in-time (JIT) and lean operations: the quantity, delivery, and inventory aspects of materials management ►Under lean/JIT, with low or zero safety stock and items arriving just before use, their quality must be fully acceptable. ►Purchaser efforts: supplier certification programs or partnerships, including quality control programs at upper-tier (i.e., indirect) suppliers

why sample sequentially?

►Mathematically, sequential sampling is an optimal stopping problem (a type of dynamic program). ►* By testing each additional unit, the inspector makes their σalgebra finer (i.e., holding more information). ►Abraham Wald, a mathematician and a pioneer of sequential sampling, estimated that, using his plan, the sample size needed could be reduced by half compared to one-shot sampling.

morale costs

►Morale costs: costs that arise from employees' loss of pride in their work and loss of incentive to continually improve the process that result from producing (or having to use) defective products or services ►The motivation to work hard and well may be replaced by a "don't care" attitude. ►Particularly acute in services where employees deal directly with frustrated customers forced to endure a poor-quality service experience ► The quality problem may be beyond the control of the employee, such as inferior materials or inaccurate information, who nonetheless has to face the wrath of an angry customer

example: honda's lean strategy

►Move production as close to customers as possible to minimize lead times and inventories ►Move design close to production to maximize information flow while minimizing response time ► Design and make high-volume products for each world region entirely within the region ►Cross-trade niche products between regions to capture scale economies

a framework for analyzing services III

►Nature of service delivery ► On the premises of the buyer: the contract needs to address provisions like security, access, nature of dress, hours of work, applicability of various codes for health, security, and safety, what equipment and materials are to be provided by whom ► On the supplier's premises or elsewhere ►Degree of standardization ► Standard or customized ►Skills required for the service ► Low skill: emphasis on price; quality monitored through customer feedback ► High skill: qualifications of the skilled persons

causes of variance

►No process can produce the same exact result every time. ►It is important to establish what kind of variation is occurring and eliminate as much as possible. ►Two types of causes: ► Common causes of variation - impossible to totally eliminate ► Special causes of variation

deming wheel - plan do check act cycle

►Plan: Collect data and set performance target ►Do: Implement countermeasures ►Check: Measure and evaluate the results of countermeasures ►Act: Standardize and apply improvement to other parts of the organization

prevention costs

►Prevention costs: costs related to all activities that eliminate the occurrence of future defects or nonconformance to requirements • quality assurance programs • precertifying and qualifying suppliers and processes • employee training and awareness programs • machine, tool, material, and labor checkouts • preventive maintenance • single sourcing with quality suppliers • associated personnel, travel, equipment, and space costs

arguments in favor of single sourcing

►Prior commitments ►Supplier may be the only available source - sole sourcing ►Outstanding quality or service ® value ►Order too small to split ►Opportunities for discounts or lower freight costs ►More important customer ® more attention from supplier ► Cost of duplication prohibitive (e.g., need special equipment like tools or dies) ► Die: a device for cutting or molding metal into a particular shape ► Easier to schedule deliveries ► Certain arrangements with the supplier like JIT, stockless buying, or systems contracting ► System contracting: a corporate agreement with a supplier to purchase a large quantity of items or raw materials on a continuous basis. The goal is to reduce cost and streamline these procurements. ► Resources required for supplier relationship management ► Prerequisite to partnering

quality function deployment (QFD)

►Quality Function Deployment (QFD): a process that translates customer requirements, or "voice of the customer" (VOC), into specifications, using a set of tools ►Many customer requirements are qualitative, using terms such as "comfortable" or "easy to use." ►QFD translates these "fuzzy" requirements into quantitative product and service design parameters.

service triads

►Recall "Service triads": The buyer contracts with a supplier to deliver service directly to the customer. ►The buyer may not observe the delivery of service, and hence needs to have mechanism in place to monitor quality.

form of evaluations: 5 dimensions

►Reliability: ability to perform the promised service dependably and accurately. ►Responsiveness: willingness to help customers and provide prompt service. ►Assurance: knowledge and courtesy of employees and their ability to inspire trust and confidence. ►Empathy: caring, individualized attention the firm provides its customers. ►Tangibles: appearance of physical facilities, equipment, and appearance of personnel.

cost consequence of removing the distributor

►Removing the distributor → increases retail inventory to four times as before — even though the same number of trucks are used and the same number of deliveries are made! ►—The third source of value of distributors: Benefits of smaller order quantities (and hence lower inventory).

standard information requests

►Requests for information (RFI) ► Signals the supplier as a potential source of supply ► Does not commit either party to future business ►Request for quotation (RFQ) (or request for bid (RFB) or invitation to bid) ► A serious inquiry on a specific requirement or variety of requirements ► Asks the supplier to declare price and terms ►Requests for proposal (RFP) ► Allow more latitude to the supplier than RFQ ► Used with requirement is difficult to describe or the purchaser expects innovation or creativity

single sourcing

►Risks of single sourcing: ► Increased protectionism, rising geopolitical tensions, and the impact of climate change on weather patterns ► Sharing key organizational information with suppliers (for the supplier to better plan, design, and service the purchaser's requirements) ►New approach: the use of the hard tools, techniques, and quantification of quality along with the soft tools of relationship building to determine when a cooperative or competitive approach with suppliers is preferable.

screening

►Screening (or 100 Percent Inspection): inspecting every item in the entire population ►May increase the cost of a part enormously ►Justifiable only in limited applications, e.g., critical or high-value items ► Honda puts every car through a series of tests before shipping it

quality of service

►Service quality: the difference between the customer's perception of the service performance and their normative expectation for the service ►Service delivery is often instantaneous. ►Quality control takes place either while the service delivery is in progress or afterward. ►It may be difficult or impossible to interrupt the process.

an overall quality-cost perspective

►Some organizations have attempted to quantify the total cost of quality. The outcome suggests that 30 to 40 percent of final product cost may be attributable to the costs of poor quality. ►Improving quality represents a major organizational challenge and an area where supply can and should play an important role.

special causes of variation

►Special (or assignable) causes of variation: a specific change in input or in environmental variables that causes variation ►Examples: ► breakdown of machinery ► systemic material variation ► systemic human error ►Must be identified and eliminated - SPC is primarily concerned with detecting and eliminating special causes. Examples: ►The death of the baby in the Münster hospital was not a result of a common cause of variation. ►Human error: Delivering medication by injecting it into IV—faster diffusion into body relative to oral delivery ►It was not nature's randomness at work. There was a simple explanation for variation in how quickly the medication diffused.

statistical process control (SPC)

►Statistical process control (SPC): a technique that involves testing a random sample of output from a process in order to detect if special causes of variation are present

when determining the best to buy

►Supply must consider economic and procurement factors and suggest them to the function responsible for specification. ►The purchaser is in a unique position to present the latest information from the marketplace that may permit ► modifications in design ► more flexibility in specifications, or ► changes in methods of manufacturing or service delivery that will improve value for the ultimate customer.

which model is better

►Supply needs to weigh the pros and cons. ►For a retailer, retail space is typically more costly than transportation and product-handling — DC adds value to the supply chain

X double bar - mean across all samples

►Suppose we have collected m samples each of size n. ►i = 1,...,m indexes the samples and j = 1,...,n indexes the parts in each sample. ►Denote the process metric of the jth item in the jth sample Xi,j. ►The mean across all samples X = (∑i ∑j Xi,j) / mn

2. shorter delivery lead times

►The longer the lead time, the more inventory is needed at the retailers to ensure that enough inventory is available for consumers. ►Manufacturer: can be far away from the buyer ►Distributor: typically chosen to be close to the buyer

scoring suppliers

►The nature and amount of the purchase will influence the weighting attached to each objective. ►Key: Decide on a formula and stick to it. Even the simplest algorithm tends to outperform the intuition of the most experienced expert (more on this later).

total quality management TQM

►Total quality management (TQM): a philosophy and system of management focused on long-term success through customer satisfaction ►All members of an organization participate in improving processes, products, services, and the culture in which they work. ►Top management develops the vision for total quality and provides the commitment and support to realize this vision.

sequential sampling

►Units are tested sequentially. After testing each unit, the inspector decides whether to accept the batch, reject the batch, or sample another unit from the batch. ► The total number of units tested is not predetermined ► The inspector bases the decision on the history of all units from the batch that they have inspected so far.

how quality control varies with the type of service: a framework for analyzing services I

►Value of the service ► Focus on high-spend services and those with high potential impact on the organization ►Degree of repetitiveness ►Degree of tangibility ► Intangible services: qualifications for the people or equipment providing the service may be used as quality markers.

X chart

►We calculate the mean of a sample consisting of n units as X = (X1 + ... + Xn) / n ►Note the difference between the population mean μ and the sample mean X ► μ is typically not known. The best practice is to estimate it using a large sample, perhaps over a long period. ►The X chart documents the trend over time. ►Identifies special causes of variation: unexpected drifts (e.g., abnormal wear of a tool) or jumps (e.g., a new person operating a process step)

tolerance

►When the intended design sits at the midpoint of the specification limits, the tolerance is the difference between the intended design and either specification limit. ►Example: design engineering writes a specification for a rod to have a diameter of 2 inches with a tolerance of ± .005 inches. ► What are the LSL and USL? = lower = 1.995, upper = 2.005 ► Any rods produced within this range are within tolerance.

EXAM 3: questions

►Where to find potential suppliers? What information to collect? ►Single- or multi-source? Work directly with manufacturers or go through distributors? Small or large suppliers? Domestic or international? ►When to choose supplier development rather than routine supplier selection? ►How to evaluate potential suppliers?

specifications

►Whether or not the outcome variables results in a defective unit or not depends on a set of specifications—a set of acceptable values for the outcome variable. ► Example: for cucumbers, specifications defining the acceptable curvature ►In the case of the outcome variable takes the value of a real number, the specification is typically given by the upper and lower specification limits (USL and LSL): the maximum and minimum acceptable levels of the outcome variable.

the role of sampling, testing, and inspection

►Word of caution: The cost of correcting poor-quality products and services is high. It is better to build in quality the first time rather than inspecting it after production or delivery. ►However some inspection may be unavoidable. ►The extent of inspection is a cost-benefit: Balance the cost against the risk of accepting a lot with an unacceptable level of defects

traditional view of quality cost tradeoff

correction cost and costs increase price prevention/detection decreases as % of defects allowed increases inc quality, decrease then increase cost can find cost minimizing defect rate in graph (vertical line) correction cost increases as % of defects increases there is an inc and dec component that level out

True or false (and why): When there is at least six standard deviations of the product metric between the upper and lower specification limits, we say the product is of six sigma quality

false 1.5 SD of wiggle room

a framework of quality

Input variables: under the control of management ► Environmental variables: not under the control of management but nevertheless might impact the outcome of the process ► Outcome variables: measures describing the quality of the output of the process ► Both input and environmental variables may be subject to common causes of variation and special causes of variation.

The match between a commercially available material, good or service and the intended function is known as:

suitability