Supply Chain Management: Chapter 8: Operations Managment
Benefits of Lean Waste Reduction
- Reduced cycle times - Greater throughput - Better productivity - Improved quality - Reduced cost *Implement lean to reduce waste on Non-Value added activities!*
3. People Involvement
- Six Sigma follows a structured Methodology - Important for employees to have *Six Sigma Roles* with measurable objectives - *All employees are responsible to identify quality problems*
Six Sigma Training and Certification Levels
-yellow belt -green belt (Rutgers Offer this) -brown belt -black belt -master black belt
Operation management refers to managing the process to ______________________, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs
Convert resources into goods/services
Role of Management
Create cultural change needed for LEAN to succeed: - Provide an *atmosphere of cooperation* - Empower workers to *take action* based on their ideas - Develop incentive system to *recognize and reward lean behaviors*
Six Sigma has two key methodologies:
DMADV Methodology DMAIC Methodology
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.
Six Sigma
Disciplined, statistical-based, data-driven methodology for identifying and removing the *causes of defect (error) and minimize variability* in manufacturing and business processes - Developed by Motorola
DMAIC Methodology
Define --> Measure --> Analyze --> Improve --> Control: which is data-driven quality strategy for *improving* products and processes This methodology is used when the company wants to *improve an existing product or business process* - Primary tool for Six Sigma (Most widely adopted and recognized Six Sigma)
Acceptance Sampling
Entire shipment is assumed to have the same quality as the representative sample that was taken. - Less time consuming than testing every unit but is susceptible to error/risks
5. LEAN Supply Chain Relationships
Firm develop lean supply chain relationships with *key customers and key suppliers* - Best relationships are when customers and suppliers both easily *exchange information, demand data, and visibility status* - Suppliers and customers work to *remove waste, reduce costs, and improve quality and customer service*
4.a Small Batch Scheduling
Ideally, produce every product as quickly as possible and at the same rate as customer demand. - Smaller batches will facilitate producing at the same rate as customer demand - It increases flexibility - Throughput times in manufacturing go down, reducing costs and eliminating/minimizing waste
Voice of the Customer (VOC)
In-depth process of capturing internal and external *customer's expectations, preferences, likes, dislikes, etc.* Ex. Customer surveys, Focus groups, observation, warranty data, complaint logs, etc.
Value is the _______________________ of a product as judged by the customer, and reflected in its selling price and market demand.
Inherent worth
Respect for People
Must exist for an organization to be at its best - Ordinary people are given *greater responsibility* - Flatter hierarchy than traditional organizations - Supply chain members work together in cross functional teams - Goal: *Not* to reduce people in an organization; it is to use *people supplies* more wisely
Malcom Baldrige National Quality Award
Objectives: Stimulate firms to improve Recognize firms for quality achievement Establish guidelines so that organizations can evaluate their improvement and provide guidance to others
4.b Uniform Plant Loading
Problem: Matching production plan to follow demand exactly can contribute to inefficiency and waste, including *excess inventory or shortage of inventory* Solution: Uniform Plant Loading - Planning up to *capacity* in earlier time periods to meet demand in later time periods. - aka "front-loading" or "leveling" the plan - Production schedule is frozen in the up-front time period - Help suppliers better plan production
Non-Value Added Process
Process steps that take time, resources, or space, but do *not add value or transform or shape* the product or service
Value-Added Process
Process steps that transform or shape a product or service which is eventually sold to a customer
Role of Workers
Workers perform different tasks and actively pursuing company goals: - Improve production process - Correct quality problems - Monitor quality - Work in Teams (i.e., Quality circles)
Total Quality Management (TQM)
a *management philosophy* based on the principle that every employee must be committed to maintaining *high standards* in every aspect of a company's operations - TQM is a combo of quality and management tools which are designed to increase business and reduce losses resulting from wasteful practices
Six Sigma
a quality management process that focuses on the improving quality of process outputs by identifying and removing the *causes of defect (errors)* and *minimize variability* in manufacturing and business processes - Goal: attain less than 3.4 defects per Million Opportunities (DPMO) - Structured and data-driven approach to drive a near perfect quality goal. - Originated by Motorola, but became famous when CEO *Jack Welch* made it central to *General Electrics*
Lean and Six Sigma are complementary principles with significant overlap. They are __________________________________________________, but the two initiatives approach their common purpose from somewhat different angles.
frequently implemented together
*Changeover Time* is the time taken _________________________ the manufacturing equipment and systems *to produce a different product or a new batch of the same product*
to adapt and modify
*Set up Time* is the time taken __________________ the manufacturing equipment and systems for production.
to prepare and format
The nature of Ops is carried out ___________________ and depends on the nature of the products or services in the portfolio
varies by company
Lean is *NOT* a tool box of methods, ideas or methodologies, it is ________________/_________________
(1) Philosophy (2) Culture
There s no single academic formalization of total quality, but noted __________ i.e., experts, all contributed to the basic framework.
(1) quality gurus
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 - *Carbon-Neutral* offsetting the carbon footprint of a firm's operation - *Sustainability is a LEAN concept*
Lean Manufacturing
*A natural fit within the discipline of SCM as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain - Satisfying internal as well as external *customer demand* - Communicating demand forecasts and production schedules up and down the supply chain, to reduce/eliminate the bullwhip eff ect - Quickly *moving products* into and through the production process - Optimizing inventory levels across the supply chain (internally and externally) - 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
7 Tools of Quality Control
*Cause-and-Effect Diagrams (Fishbone/Ishikawa)* = Used to aid in brainstorming and isolating the causes of a problem *Flow charts* = Sequence of movement or actions of people or things involved in a complex system or activity *Check Sheets* = used to determine frequencies for specific problems *Control Charts* = Graph to study how a process changes over time *Scatter Diagrams* = The values of two variables plotted along two axes, to reveal any correlation present *Pareto Analysis* = For presenting data in an organized fashion, indicating process problems from most to least severe *Histograms* = A graphical display where data is grouped into ranges
Waste Categories
*DOWNTIME!!!* *D*efects - Anything that does not meet the acceptance criteria *O*verproduction - Production before it is needed, or in excess of customer requirements. Providing a service that is not needed. *W*aiting - Elapsed time between processes when no work is being done. *N*on-Utilized Talent - Under utilizing people's talents, skills, or knowledge. De-motivating the workforce by not asking for input or recognizing success. *T*ransportation - Unnecessary movement of materials or products *I*nventory - Excess products of materials not processed *M*otion/*M*ovement - Unnecessary movement or people, multiple hand-offs *E*xtra-Processing - Unnecessary steps in a process. Redundancies between processes. More work or higher quality than required by the customer.
Small Batch scheduling can be facilitated through the use of ____________________.
*Kanban* = "Signal" or "Card" in Japanese - used for communication between workstations
Pull System vs. Push System
*Push System*: supply chains work as a "push system" - Inventory is carried to cover up problems - Supply driven, and is pushed on to consumers *Pull System*: Each stage in supply chain requests quantities needed from the previous stage - No excess inventory is generated - Reducing inventory levels can also *uncover production problems* - Demand driven - consumers' actual wants and needs drives product creation and availability
LEAN Manufacturing is a combination of these concepts:
*Quick Response* - Rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale *Efficient Customer Response* - a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers *Just In Time* - inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs *Keiretsu Relationship* - involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit.
Setup Time and Changeover Time Reduction
*Setup Time and Changeover Time* are both considered *waste* as they are *times when the equipment is not performing its intended function*, producing the product - Both setup time and changeover time are *non-value added* operations and should be minimized as much as possible
5 S's of Lean Layout
*Sort* - Keep only necessary items in workplace, eliminate rest *Straighten* - Organize and arrange items to promote an efficient workflow *Sweep/Shine* - Clean work area so it is neat and tidy *Standardize* - Schedule regular cleaning and maintenance *Sustain* - Stick to the rules. Maintain and review the standards
Six Sigma focuses on:
*the elimination of defects and reduction of variations* - Six Sigma uses technical tools such as Root Cause Analysis, Statistical Process Control, DMAIC
2. Use of Technical Tools
- *Statistical* quality control for solving any problem and improves the quality level of the product - Employees should be trained to use 7 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*
Understand "Value"
- Any activity that increase the market, form, or function of the product/service - Things for which customer is willing to pay
Philip Crosby
- Coined the term, "quality is free" - Introduced concepts of *zero defects, and focus on prevention and not inspection* - 4 Absolutes of quality: a. Quality is conformance to requirements b. The system of quality is prevention c. Performance standard is 0 defects d. The measure of quality is the price of non conformance
1. Quality is Defined by Customer
- Customer expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more - It is vital provide what the customer need to achieve customer satisfaction
Joseph Juran
- Defined quality as "fitness for use" - Developed concept of *costs of quality* - Quality Planning - Quality Control - Quality Improvement
1. Waste Reduction
- Eliminate waste from production systems - 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.
W. Edwards Deming
- Father of TQM - Creator of Plan-Do-Check-Act model - Stressed management's responsibility for quality. - Develop 14 points to guide companies in *quality improvement*
Karou Ishikawa
- Father of quality circles - Proponent of continuous customer service - Developed the quality management process, the Cause and Effect Diagram - aka the "Ishikawa" or "Fishbone" - Help find the root cause
Key Principles of TQM are:
- Management Commitment - Employee Empowerment - Fact Based Decision Making - Continuous Improvement - Customer Focus
7. Continuous improvement (Kaizen)
Continuous approach to reduce process, delivery, and quality problems, such as machine breakdown problems, setup problems, and internal quality problems
When a shipment is received from a supplier, a ______________________________is taken and *measured against the quality*
Statistically significant representative sample
2 Broad Categories of the Manufacturing Process
1. *Intermittent Process* - used to produce large variety of products with different processing requirements in *lower volumes* 2. *Repetitive Process* - Used to produce one, or a few, standardized products in *high volumes.*
2 Risks in sampling
1. *Supplier's Risks* - Buyer rejects good quality shipment b/c sample quality did not meet acceptance standard (Type 1) 2. *Buyer's Risks* - Buyer accepts shipment of poor quality units b/c sample falsely provides a positive result against the acceptance standard (Type 2)
Manufacturing Strategy and Performance Cycle (Customer Experience Lead Times)
1. MTS - Customer Delivery Cycle (The product is already produced and available in the warehouse when the customer order is received,) 2. ATO - Manufacturing + Customer Delivery Cycle (The product design is complete and the components/materials have already been pro-cured when the customer order is received) 3. MTO - Procurement Cycle + Manufacturing + Customer Delivery Cycle (the product design is the only element complete when the customer order is received) 4. ETO - Product Design + Procurement Cycle + Manufacturing + Customer Delivery Cycle (no supply chain elements have been completed when the customer order is received, so full cumulative supply chain lead time.)
4 Major Manufacturing Strategies
1. Make-To-Order(MTO) 2. Make-To-Stock (MTS) 3. Assemble-To-Order (ATO) 4. Engineer-To-Order (ETO)
Three Foundational Aspects of Six Sigma
1. Quality is Defined by Customer 2. Use of Technical Tools 3. People Involvement
7 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 and Commitment 7. Continuous improvement
As volume goes up...
A. *Manufacturing and Procurement costs go down* due to economies of scale B. *Inventory and Warehousing costs goes up* C. *Transportation costs goes down*, but levels off at high volumes as shipping container gets filled to capacity and another container must be used
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 - Divided into 2 Categories; a. Cost of Good Quality b. Cost of Poor Quality
Lean
An operating philosophy of *waste reduction* and value enhancement. - Created by Toyota
a. Cost of Good Quality
Appraisal Costs and Prevention Costs
Appraisal Cost
Associated with the *evaluation* of purchased materials, processes, products, and services to ensure that they *conform to specification* - Costs for: Testing, evaluating, inspecting materials, quality assessment, performing audits
Large Batches can worsen the _________________________ as production in large batches creates an uneven workload. Does not synchronize with customer demand, making it impossible to use pull system. (think of snake swallowing a large meal)
Bullwhip effect
Manufacturing Strategies
Companies must develop a manufacturing strategy that suits the *types of product* that they produce, their *customer expectations*, and their *strengths*. - Developing a strategy that suits a company's strengths is essential for establishing and maintaining an effective supply chain
Intermittent Category
Composed of 2 processes: a. *Project* - (aka Job Shop) creates a custom product for each customer. High customization - Very High product variety - Very Low volume - ETO/MTO - Very Long customer lead time b. *Batch* - manufactures small quantity of an item in a single production run - High product variety - Low volume - MTO/ATO/MTS - Long customer lead time
Repetitive Category
Composed of 2 processes: a.*Line* - standard products with a limited number of variations moving on an assembly line through stages of production - Limited variety - High volume - ATO/MTS - Short customer lead time b. *Continuous* - used to manufacture such items such as gas, detergent, and chemicals. Inflexible processes and high capital investment - Very limited product variety - Very High volume - MTS - Very Short customer lead time
b. Cost of Poor Quality
Internal Failure and External Failure costs
Goal of LEAN
Is to *eliminate waste and minimize the amount of 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, respect for people
Role of Supplier
LEAN builds long-term supplier relationships: - Partner with suppliers. - Improve process quality. - Information sharing. - *Goal: to have the fewest number of high quality suppliers without unnecessary increasing risk.*
LEAN is composed of three elements working in unison:
Lean Manufacturing Total Quality Management (TQM) Respect for People
6. Workforce Empowerment and Commitment
Managers must support LEAN manufacturing by providing subordinates with *skill, tools, time and other necessary resources to identify problems and implement solutions*
1. Make-To-Stock (MTS)
Manufacture *products for stock based on demand forecasts*. Push System - How to forecast demand accurately is critical to *prevent excess inventory and avoid stockout* - MTS products are daily necessities, such as food, sundries, textiles. - Challenge: *avoid having excess inventory* - Companies *tend to hold more inventory in case they need it, and therefore struggle with ensuring that inventory levels don't get out of control*
____________________________ is the management of all processes which are involved in manufacturing
Manufacturing Management
2. Make-To-Order (MTO)
Manufacturing starts only *after a customer's order is received* - Additional wait time - Allows customers to *customize* products to specifications - MTO *relieves excessive inventory*, a problem found in MTS - MTO is *not appropriate for all products*; appropriate for highly configured products (aircraft, bridges) and very expensive products in inventory - Ex. Amazon, Etsy
2. LEAN Layouts
Move people and materials *where and when needed,* and as soon as possible - Very visual with operators at one processing center able to monitor work at another - Manufacturing cells is to process similar parts or components to save duplication or equipment and labor; often U-Shaped to facilitate easier operator and material movement - Ex. Sandwich shop
4. Engineer-To-Order
Product is designed, engineered, and built to the customer's specifications after receipt of the order. - Dramatic evolution of MTO - Involves *building a unique product every time; finished product is different every time* - *Cost of Poor Quality can be very high* - Cost of poor quality = are costs that would disappear if systems, processes, and products were perfect (Ex. warranty costs, rework to replace an item in a complex assembly) - Ex. specialty vehicles like firetrucks and ambulance
Internal Failure Costs
Product or service does not meet the designed quality standards, and are identified *before* the product of service is *delivered to customer* - Costs for: Defective products that cannot be used, sold, repaired, unnecessary work, Failed Activities with root causes
External Failure Costs
Product or service does not meet the designed quality standards, but is not detected until *after* the product of service is *delivered to customer* - Cost for: Returned products, responding to customer complaints, failed products that need to be replaced, investigation of rejected or recalled products
3. Assemble-To-Order (ATO)
Products ordered by customers are produced *quickly and are customizable* to a certain extent. - Requires basic parts for product are already manufactured but not yet assembled - Parts are assembled into a finished product which is then sent to a customer - ATO is a *hybrid strategy*, combining the benefits of MTO and MTS strategies. Getting products into customer's hands quickly while allowing for some customization available - Ex. Dell, ordering a custom computer
5 How's Techniques
Questioning technique for drilling down into the deals of *a potential solution* to a known problem - Brainstorms resolutions to root causes and develop an action plan to solve it - It is designed to bring clarity and refinement to a solution and arrive the *root solution/best solution* - Used in conjunction with Cause and Effect Diagram
5 Why's Technique
Questioning technique for identifying *the root cause of a problem* - Used in the Analyze phase of Six Sigma of DMAIC
Prevention Costs
Related to the design, implementation, and maintenance of the quality management system. They are planned, and *expended before actual products or materials are acquired/produced* - Costs for: creating quality plans, developing and preparations of quality training, maintenance, specifications for incoming materials, etc.
Production in small batches creates a __________________ as production can be synchronized with customer demand, facilitating pull system
Smooth workload
3. Inventory, setup time, and changeover time 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, insecure etc. - Reducing inventory can *free up financial capital and reduce holding costs* - There is *a less likelihood of waste being created*Pull by obsolescence, spoilage, or damage *with lower inventory levels*
Total Cost of Manufacturing (TCM)
The complete cost of producing and delivering products to your customers - Incorporates both fixed and variable costs in manufacturing, storing, and delivery of product - TCM = cost/unit - TCM includes: a. *Manufacturing and Procurement* Activities b. *Inventory and Warehouse* Activities c. *Transportation* Activities
Goal of LEAN is:
The elimination of waste and minimization of the amount of all resources used in the operation of a company - Results in: a. Large cost reductions b. Improved quality c. Increased customer service
Implementing Six Sigma and Lean
The most successful implementations begin with lean, followed by more technical Six Sigma tools to resolve process problems
Manufacturing
To process or make *raw materials or components into a finished good or service* especially by means of a large-scale industrial operations (i.e., mass production) - Involves machines used, personnel involved, inventory handling, warehousing, etc.
Lean + Six Sigma =
faster *speed* and better *accuracy*
