Intro to Supply Chain Chapter 8

3 foundational aspects of Six Sigma

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

Control charts

A graph to study how a process changes over time.

Continuous Improvement (Kaizen)

A system involving every employee that is based on making little changes on a regular basis, anywhere changes can be made, to reduce process, delivery, and quality problems. As a result, there are continuous small improvements, changes are implemented quickly, and everyone gets involved.

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.

Pareto Analysis

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

Quality planning

Identifying internal / external customers and needs, as well as developing products satisfying those needs. Managers set goals, priorities, and compare results.

Keiretsu Relationships

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

The Role of Suppliers

LEAN involves building long-term supplier relationships- partnerships with suppliers, improving process quality, and sharing info. The goal is to have the fewest number of high-quality suppliers possible without unnecessarily increasing risk.

Major Manufacturing Startegies

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

Buyer's Risk

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

Manufacturing Management

the management of all the processes which are involved in manufacturing

The Seven Tools of Quality Control

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

What Lean is *NOT*

1. Laying off employees by the bus load 2. Delivering less or working harder 3. Outsourcing or offshoring 4. A cost reduction program 5. Just a set of "tools," like 5S, kaizen events, etc. 6. Automation or buying a monstrous ERP system 7. Winning a Shingo Prize so as to look Lean. Additionally, LEAN is NOT a tool box of methods, ideas, or methodologies, it is philosophy/culture.

The Five-S's

1. Sort- keep only necessary items in the workplace, and eliminate the rest. 2. Straighten- organize and arrange items to promote an efficient workflow. 3. Shine- clean the work area so it is neat and tidy. 4. Standardize- schedule regular cleaning and maintenance 5. Sustain- stick to the rules, as well as maintain and review standards. The 5 S's focus on effective workplace organization, and standardization. It allows us to easily spot variation from standard operating conditions. It results in a cleaner and safer work environment, organized and user friendly workstations, and opens up space and reduces clutter.

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

Six Sigma Methodology

2 key methodologies: 1. DMADV- stands for "Define, Measure, Analyze, Design, and Verify." 2. DMAIC- stands for "Define, Measure, Analyze, Improve, and Control."

Root Cause Analysis (RCA)

A collective term that describes a wide range of approaches, tools, and techniques used to uncover causes of problems. It is the core issue that sets in motion the entire cause-and-effect reaction that ultimately leads to the problem(s). Some root cause analysis approaches are geared more toward identifying true root causes than others, some are more general problem-solving techniques, and others offer support for the core activity of root cause analysis.

People Involvement

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

DMADV (define, measure, analyze, design, and verify)

A data-driven quality strategy for designing products, and processes. It is used when the company wants to create a new product design, or business process that is more predictable and defect free.

DMAIC (Define, Measure, Analyze, Improve, and Control)

A 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. It is the most widely adopted and recognized Six Sigma methodology in use, and defines the steps a Six Sigma practitioner typically follows during a project.

Histograms

A graphical display where the data is grouped into ranges.

Total Quality Management

A management philosophy based on the principle that every employee must be committed to maintaining high standards of work in every aspect of a company's operations. TQM is a combination of quality and management tools which are designed to increase business, and reduce losses resulting from wasteful practices. Six Sigma is an integral part of Total Quality Management. The key principles of TQM are management commitment, employee empowerment, fact-based decision making, continuous improvement, and customer focus. There is no single academic formalization of total quality, however, a number of noted quality experts all contributed to the basic framework (W. Edwards Deming, Philip Crosby, Joseph Juran, and Kaoru Ishikawa).

Make-to-Order (MTO)

A manufacturing strategy in which manufacturing starts only after a customer's order is received. This strategy creates additional wait time for the customer to receive the product, but allows customers to purchase products that are customized to their specifications. The MTO strategy relieves the problems of excessive inventory that is common with the MTS strategy. However, MTO is not appropriate for all types of products. It is not appropriate for products where customers expect immediate availability/delivery (Ex. Grocery items), but is appropriate for highly configured products (Ex's: aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory).

Engineer to Order (ETO)

A manufacturing strategy in which the product is designed, engineered, and built to the customer's specifications after receipt of the order. It is a more dramatic evolution of MTO strategy. ETO involves building a unique product every time. There may be components that are common from one product to another, but the finished product is different each time (Ex. Customized piece of manufacturing equipment). However, the cost of poor quality can be very high. The warranty costs, and the cost of rework to replace an item in a complex assembly can have a serious negative effect on profit margins.

Assemble-to-Order (ATO)

A manufacturing strategy where products ordered by customers are produced quickly, and are customizable to a certain extent. It requires that the basic parts for the product are already manufactured but not yet assembled. Once an order is received, the parts are assembled quickly into the finished product which is then sent to the customer (Example: Dell Laptop Computers). ATO is a hybrid strategy, attempting to combine the benefits of both MTS and MTO strategies, getting products into customers' hands quickly while allowing for some customization to take place.

LEAN Manufacturing

A natural fit within the discipline of Supply Chain Management, as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain. It satisfies internal customer demand, communicates demand forecasts and production schedules up the supply chain, and quickly moves products in the production system. It also optimizes inventory levels across the supply chain, increasing the value, capabilities, and flexibility of the workforce through cross-training, and extending collaboration and alliances beyond just 1st tier suppliers and customers to include 2nd and 3rd tier suppliers, and customers as well.

Flow Diagram

A sequence of movements or actions of people, or things involved in a complex system, or activity.

Efficient Consumer Response (ECR)

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

Voice of the Customer (VOC)

A term used in business to describe the in-depth process of capturing internal and external customer's stated and unstated expectations, preferences, likes, and dislikes (It can be used in customer interviews, market surveys, focus groups, customer specifications, observation, warranty data, field reports, and complaint logs). This data is used to identify the quality attributes needed for a process or product.

Cost of Quality

An approach that supports a company's efforts to determine the level of resources necessary to prevent poor quality, and to evaluate the quality of the company's products and services. Any cost that would not have occurred if quality was perfect contributes to the cost of quality. It also helps a company determine the benefits and savings generated by potential process improvements. Can be divided into the cost of good quality (appraisal and prevention costs), and the cost of poor quality (internal and external failure costs).

LEAN

An operating philosophy of waste reduction, and value enhancement. It improves the supply chain "flow" by eliminating waste, and is based on the Toyota Production System (TPS). It also uses Value Stream Mapping as the primary work unit to focus on improving process performance, and having a clear view of the end state. Additionally, LEAN facilitates a culture change- once we eliminate waste, we can change our behavior, attitude, and culture.

Cost of Good Quality - Appraisal Costs

Are associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications. They include costs for: 1. Testing, evaluating, and inspecting the quality of incoming materials, process setups, and products, against agreed upon specifications. 2. Quality assessment and approval of suppliers. 3. Performing audits to confirm that the quality system is operating properly.

Setup Time and Changeover Time Reduction

Are both considered a waste, as they are times when the equipment is not performing its intended function, which is 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. While setting up the equipment is a necessary function, if the set up time can be minimized, the difference will be more time available to produce. Both setup, and changeover are non-value operations, and should be minimized as much as possible.

Cost of Good Quality - Prevention Costs

Are related to the design, implementation, and maintenance of the quality management system. They are planned, and experienced before actual products or materials are acquired or produced. They include costs for: 1. The establishment of specifications for incoming materials, processes, products, and services. 2. The creation of quality plans. 3. The development, preparation, and maintenance of quality training. 4. The creation, and maintenance of the quality system.

TCM vs Strategic Alternatives

As volume goes up, manufacturing and procurement costs go down due to economies of scale. Generally-step function applies as more capital is required to produce. Inventory and Warehousing costs go up. Transportation costs go down, but level off at high volumes, as the shipping container gets filled to capacity, and another container must be used.

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, as well as the focus on prevention and not inspection. He also demonstrated what a powerful tool the cost of quality could be to raise awareness of the importance of quality, and referred to the cost of quality as the "price of nonconformance," and argued that organizations choose to pay for poor quality. He introduced the four absolutes of quality: 1. Quality is conformance to requirements. 2. The system of quality is prevention. 3. Performance standard is zero defects. 4. The measure of quality is the price of nonconformance.

Manufacturing Strategies

Companies must develop a manufacturing strategy that suits the types of products that they produce, their customer's expectations, and their strengths. Manufacturing strategies can vary significantly depending on the product and/or the customer requirements. Developing a manufacturing strategy that suits a company's strengths is essential for establishing and maintaining an effective supply chain.

Non-Value Added Pure Waste

Consumes resources but creates no value for the customer. It could be stopped, and would be invisible to the customer.

The Role of Management

Create the cultural change needed for LEAN to succeed. It provides an atmosphere of cooperation, empowers workers to take action based on their ideas, and develop incentive systems to recognize and reward behaviors

Job Shop Production (aka Project Production)

Creates a custom product for each customer. They are aka one-off or small number of items produced, generally one unit manufactured at a time. They are also high customized, are normally made to customs specifications, and are often undertaken by small, specialist businesses (Ex's: Architects, Custom Home Construction, Ship Builders, and Road Builders).

Joseph Juran

Defined quality as "fitness for use," and developed the concept of the cost of quality. He broke quality down into quality planning, quality control, and quality improvement.

Quality control

Determine what to control, establish standards of performance, measure performance, interpret the difference, and take action.

Kaoru Ishikawa

Developed one the first tools in the quality management process, the cause and effect diagram, aka the "Ishikawa," or "fishbone" diagram. With this tool, the user can see all possible causes of a problem to help find the root cause. He is also known as the father of quality circles, and helped bring this concept into the mainstream. Furthermore, he was a proponent of continuous customer service, meaning that a customer should continue receiving service even after receiving the product.

LEAN Supply Chain Relationships

Firms develop lean supply chain relationships with key customers, and key suppliers. In an ideal LEAN supply chain relationship, both customers and suppliers get connected in ways that allow them to easily exchange info, demand data, and the visibility of status. It also creates mutual dependency and benefits occur among these partners. Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service.

Waste Reduction

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

Line Flow Production (aka Mass Production)

For standardized products with a limited number of variations. The product moves on an assembly line through various stages of production. When one task is finished, the next task must start immediately, therefore, time taken on each task must be the same (Ex's: automobile assembly, cell phones, and toilet paper).

William Edwards Deming

Is widely considered the father of TQM, and is the creator of the Plan-Do-Check-Act model. He stressed management's responsibility for quality. He developed 14 points to guide companies in quality improvement.

4 Types of Manufacturing Processes

Job shop, batch, assembly, and continuous flow.

Implementing LEAN and Six Sigma

LEAN and Six Sigma are complementary principles with significant overlap. Although they are frequently implemented together, they approach their common purpose from somewhat different angles. The most successful implementations begin with LEAN, followed by the more technical Six Sigma statistical tools used to resolve process problems.

Small Batch Scheduling

LEAN manufacturing attempts to reverse small batch scheduling. Smaller batches will facilitate producing at the same rate as customer demand. Production in small batches creates a smooth workload, as production can be synchronized with customer demand, facilitating a pull system, which increases flexibility allowing the company to respond to changes in customer demands more quickly. Throughput times in manufacturing go down, and Work-in-Process inventory goes down, reducing costs and eliminating or minimizing waste in the system.

Components of LEAN

LEAN manufacturing, Respect for People, and Total Quality Management (covered with Six Sigma).

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. Managers can also create a culture in which workers are encouraged to speak out when problems are found. In LEAN Manufacturing, employees are cross-trained on many of the various production processes to enable capacities to be adjusted as needed when machines break down, or when workers are absent.

Make-to-Stock (MTS)

Manufacture products for stock based on demand forecasts, which is a push system. It is the most common and widely used strategy. Since accurate forecasts will prevent creating excess inventory and avoid stockouts, the critical issue is how to forecast demands accurately. Most daily necessities such as foods, sundries, and textiles are MTS-type products. However, the challenge of MTS is to avoid having excess inventory- companies that operate with a MTS model tend to hold more inventory just in case they need it, therefore, they struggle to ensure that inventory levels don't get out of control.

Batch Production

Manufacturing of a small fixed quantity of an item in a single production run. Each individual item in the batch goes through one stage of the production process before the whole batch moves on to the next stage. It aims to achieve better use of equipment, and produces good quality products more economically than manufacturing them individually (Ex's: bakeries, textiles, furniture, and pharmaceuticals). (In the job shop production, you would be making one cookie at a time as opposed to a batch.)

Kanbans

Means "signal or "card" in Japanese, used for communication (e.g., visual signal) between workstations. Kanban's authorize production or the movement of materials to the next workstation, and could be facilitated through the use of a computer software program, i.e., ERP system.

LEAN Layout

Move people and materials when and where needed, and as soon as possible (basically how you organize producing a product). They are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another.

Respect for People

Must exist for an organization to be at its best. LEAN involves a flatter hierarchy than traditional organizations- ordinary workers are given greater responsibility. Supply chain members work together in cross functional teams. The goal is NOT to reduce the number of people in an organization, it is to use people resources more wisely.

Cost of Poor Quality - Internal Failure Costs

Occur when the product or service doesn't meet the designed quality standards, and are identified before the product or service is delivered to the customer. They include costs for: 1. Defective product or material that can't be used, sold, or repaired, and the costs associated with correction of these defects. 2. Unnecessary work or inventory resulting from errors. 3. Activities required to establish the root causes of product or service failures.

Cost of Poor Quality - External Failure Costs

Occur when the product or service doesn't meet the designed quality standards, but is not detected until after the product or service is delivered to the customer. They include costs for: 1. Handling and responding to customer complaints. 2. Failed products that must be replaced, or services that are repeated. 3. Repair of returned products, and products still in the field. 4. Handling and investigation of rejected or recalled products, including return transportation costs.

Manufacturing Processes

Part of any manufacturing strategy involves developing a manufacturing process that can create the exact product that has been designed. Although there are differences between companies, many manufacturing processes have certain characteristics in common. Based on these characteristics, processes can be grouped into two broad categories: intermittent processes, and repetitive processes.

The Role of Workers

Perform tasks and actively pursuing company goals including improving the production process, correcting quality problems, and monitoring quality.

Manufacturing cells

Process similar parts or components saving duplication of equipment and labor. They are often U-shaped to facilitate easier operator, and material movements.

Quality is Defined by the Customer

Quality and excellence are what your customers say they are. Customers of your products and services define quality! Customers want quality that is appropriate to the price that they are prepared to pay and the level of competition in the market. Key aspects of quality for the customer include reliability, good functionality, durability, good design, good after sales service, value for money, and consistency.

Benefits of LEAN Waste Reduction

Reduced cycle times, greater throughput, better productivity, improved quality, and reduced costs. All of these can improve customer satisfaction and provide the company with a competitive advantage.

Operations management

Refers to managing the process to convert resources into goods and services, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs. The nature of how it is carried out varies by company, and depends on the nature of the products or services in the portfolio.

Continuous Flow Production

Requires high capital investment frequently dedicated to one specific product. It involves a series of processes which raw materials flow through. These processes are very inflexible. It is generally highly automated, and workers act as monitors rather than as active participants. Typically, production runs 24 hours/day with the end result being a large quantity of finished product (Ex's: laundry detergent, chemicals, oil refining, gasoline, and cement).

Quality improvement

Show the need for improvement, identify projects for improvement, implement remedies, and provide control to maintain improvement.

The Use of Technical Tools

Six Sigma provides a statistical approach for solving any problem, and thereby improves the quality level of the product, as well as the company. However, it is concerned with the permanent fix to quality problems and seeks to identify and correct the root cause of the problem. As a result, all employees should be trained to use the Seven Tools of Quality Control.

Inventory, Setup Time, & 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, and insure. It ties up financial capital which could be used for other aspects of the business. However, reducing inventory can free up capital and reduce holding costs. There is less likelihood of waste being created by obsolescence, expiry, spoilage, or damage with lower inventory levels.

LEAN History

Starting in 1910, Ford's mass production line was the first breakthrough by using continuous assembly and flow systems. In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and other techniques 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." In the 1990's, Supply Chain Management combined Quick Response, Efficient Consumer Response (ECR), Just-In-Time (JIT), and Keiretsu Relationships. The combination of these concepts have emerged as the philosophies and practices known as LEAN Manufacturing

Non-Value Added Process

Take time, resources, or space, but don't add value to the product, or service. It is required by current thinking, process limitations, current technology, and current regulations.

The 5 How's Technique

The "5 How's" is a questioning technique for drilling down into the details of a potential solution to a known problem. It is designed to bring clarity and refinement to a solution, and arrive the root solution (best solution). It is a useful method of brainstorming resolutions to the root causes, and developing action items to resolve the problem (Think of this activity as being halfway up a ladder, with 5 steps above it, and 5 below. You go up the ladder by asking "why" and down it by asking "how."). The 5 Whys, and 5 How's are typically used in conjunction with the Cause and Effect Diagram.

The 5 Why's Technique

The "5 Why's" is a questioning technique for identifying the root cause of the problem. By repeatedly asking the question "Why," (five is a good rule of thumb) you can peel away the layers of symptoms which can lead to the root cause of a problem (i.e., the underlying factors or causes of an event). The 5 Why's is used in the "Analyze" phase of the Six Sigma DMAIC methodology.

Supplier's Risk

The buyer rejects a shipment of good-quality units because the sample quality level didn't meet the acceptance standard (Type I error).

Total Cost of Manufacturing (TCM)

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. TCM includes manufacturing and procurement activities, inventory and warehousing activities, and transportation activities.

Six Sigma

The concept of Six Sigma was originated by Motorola. It is a disciplined, statistical-based, data-driven methodology for identifying and removing the causes of defects (errors), and minimizing variability in manufacturing and business processes. It also improves the supply chain "process" by reducing variation. The goal of Six Sigma is to attain less than 3.4 Defects Per Million Opportunities (DPMO).

Small Batch Scheduling & Uniform Plant Loading

The ideal schedule is to produce every product as quickly as possible, and at the same rate as customer demand. However, in the real world, material availability, labor availability, and setup or changeover time influences the scheduling of large batches. Large batches can exacerbate the Bullwhip Effect as production in large batches creates an uneven workload. Production is not synchronized with customer demand, making a pull system impossible. Throughput times in manufacturing go up, and work-in-process inventory goes up, creating more waste in the system (Think of a snake trying to swallow a large meal).

Manufacturing Strategy vs Performance Cycle

The manufacturing strategy defines what cycle time (i.e., lead time) the customer will experience for delivery.

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

The problem is that demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including excess inventory, or shortages of inventory. Uniform plant loading allows planning up to capacity in earlier time periods to meet demand in later time periods. It is aka "front-loading" the plan, or "leveling" the plan. Production schedule is frozen in the up-front time period (i.e., month), and helps suppliers better plan production.

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.

Scatter Diagrams

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

Manufacturing

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

The Pull System

Traditionally, supply chains work as "push" systems, and inventory is carried to cover up problems. In the "pull" system, each stage in the supply chain requests quantities needed from the previous stage. As a result, no excess inventory is generated. Reducing inventory levels can also uncover production problems.

Value-Added Process

Transform, or shape a product or service which is eventually sold to a customer. The customer wants it and is willing to pay for it, and is done right the first time.

Cause and Effect Diagrams

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

Check sheets

Used to determine frequencies for specific problems.

Intermittent processes

Used to produce a large variety of products with different processing requirements in lower volumes. Types are job shop production, and batch production.

Repetitive processes

Used to produce one, or a few, standardized products in high volumes. Types are line flow production, and continuous flow production.

Understand "Value"

Value is defined as the inherent worth of a product as judged by the customer, judged by the customer, and reflected in its selling price and market demand. It is any activity that increases the market, form, or function of the product/service for which the customer is willing to pay.

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. 2 types of errors are supplier's risk, and buyer's risk.