Chapter 8

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Traditional Approach:

Supply chains work as "push" systems Inventory carried to cover up problems

Six Sigma History

Six Sigma became famous when Jack Welch made it central to his successful business strategy at General Electric in 1995 Reported $200MM in savings in the first year of implementation (1996)

What is Six Sigma goals

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes.

What is Six Sigma?

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes.

Logistics: for lean six sigma

Optimization models to select routes. Warehouse design changes reduce waste.

Make-to-Stock (MTS)

literally means to manufacture products for stock based on demand forecasts, which is a push system.

Make-to-Order (MTO)

relieves the problems of excessive inventory that is common with the traditional Make-to-Stock strategy

Six Sigma History

Originated by Motorola in 1979 "The real problem at Motorola is that our quality stinks!" Art Sundry, Sales Leader, boldly stated at annual sales meeting In the early to mid-1980's, Motorola developed the new standard and created the methodology $20MM in savings for Motorola's pager production line Also a change in mindset (Cost of Poor Quality) and culture

Uniform Plant Loading:

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

Value Added Process

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

Make-to-Stock (MTS)

Since accuracy of the forecasts will prevent excess inventory and opportunity loss due to stockout, the critical issue is how to forecast demands accurately.

Statistical Process Control Allows firms to:

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

Acceptance Sampling

When shipments are received from suppliers, samples are taken and measured against the quality acceptance standard. Shipment is assumed to have the same quality. Sampling is less time-consuming than testing every unit but can result in errors

Assemble-to-Order (ATO)

a hybrid strategy between a Make-to-Stock strategy where products are fully produced in advance, and the Make-to-Order strategy where products are manufactured once the order has been received.

Engineer-to-Order (ETO)

a manufacturing process in which the component is designed, engineered, and built to specifications only after the order has been received

LEAN

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

Flow Diagrams

annotated boxes representing process to show the flow of products or customers

Joseph Juran

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

The Seven Elements of LEAN Manufacturing

Waste Reduction LEAN Supply Chain Relationships LEAN Layouts Inventory and Setup Time Reduction Small Batch Scheduling Continuous Improvement Workforce Empowerment

Assemble-to-Order (ATO)

a manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent

Make-to-Stock (MTS)

a train schedule (supply schedule) for which the number of passengers (forecast demand) for each time period can be determined from the past data. Most daily necessities such as processed foods, sundries, and textiles are MTS-type products.

Six Sigma

an enterprise and supply chain-wide philosophy that emphasizes a commitment toward excellence and encompasses suppliers, employees, and customers

Make to Order (MTO)

relies on relatively small quantities, but more complexity

Assemble-to-Order (ATO)

requires that the basic parts for the product are already manufactured but not yet assembled

Respect for all people must exist for an organization to be at its best

Flatter hierarchy than traditional organizations. Ordinary workers given great responsibility. Supply chain members work together in cross functional teams.

Total Cost of Manufacturing (TCM)

It includes all costs associated with: Production and procurement activities Inventory and warehousing activities Transportation activities

Total Cost of Manufacturing (TCM)

It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product

Make-to-Order (MTO)

It is like an elevator because MTO starts by receiving an order as an elevator starts by pressing a button

Steps: for LEAN six sigma supply chian

Jointly Define Value. Conduct Supply Chain Capability Analysis. Develop Key Financial and Operational Metrics. Identify and Implement System Improvements. Value Stream Mapping (VSM

Role of Supplier

LEAN builds long-term supplier relationships:

LEAN and Six Sigma complement one another;

LEAN focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations

Malcolm Baldrige National Quality Award Categories Measured

Leadership Strategic Planning Customer and Market Focus Information and Analysis Human Resource Focus Process Management Business Results

LEAN builds long-term supplier relationships:

Partner with suppliers. Improve process quality. Information sharing. Goal to have single-source suppliers.

Non-Value Added Process

Process steps that take time, resources, or space, but do not add value to the product or service

What is Six Sigma?

A quality management process:

(1) Waste (Muda) Reduction

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

Consumer's risk:

Buyer accepts a shipment of poor-quality units because the sample falsely provides a positive answer (type II error)

Uniform Plant Loading Problem:

Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste

Pull Approach:

Each stage in the supply chain requests quantities needed from the previous stage. No excess inventory generated. Reduced inventory exposes problems

(1) Waste (Muda) 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.

Tools to help determine customer wants:

Focus groups Market surveys Customer interviews

Philip Crosby

Four Absolutes of Quality

Visual signals. Communication between workstations

Kanban: "Signal" or "Card" in Japanese. Contains information passed between stations. Authorizes production or the movement of materials to the next workstation.

LEAN

LEAN Manufacturing Total Quality Management Respect for People

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

Reducing wastes consequently results in:

Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs

Engineer-to-Order (ETO)

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.

Engineer-to-Order (ETO)

There may be components that are common from one product to another, but not in the same quantity as in repetitive manufacturing

LEAN History

These approaches have emerged as philosophies and practices known as LEAN Manufacturing (or LEAN Production) and Six Sigma

Quality is meeting or exceeding customer expectations

Tools to help determine customer wants:

The Pull System

Traditional Approach: Pull Approach:

Six Sigma Methodology

Two Aspects: 1. Use of technical tools Statistical quality control. Seven tools of quality. 2.People involvement: All employees responsible to identify quality problems. All employees trained to use technical tools.

Non-Utilized Talent

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

Workers performing different tasks and actively pursuing company goals:

Worker duties: Improve production process Correct quality problems Monitor quality Work in Teams: Quality circles

Check Sheets

- to determine frequencies for specific problems.

Engineer-to-Order (ETO)

building a unique product every time.

Producer's risk:

A buyer rejects a shipment of good quality units because the sample quality level did not meet standards (type I error)

LEAN History

In the 1990s, supply chain management combined: Quick Response (QR) - speed and flexibility Efficient Consumer Response (ECR) - speed and flexibility Just-in-Time (JIT) - Continuous reduction of waste Keiretsu Relationships - Including suppliers in JIT/TQM efforts

LEAN History

Starting 1910's, Henry Ford's mass production line was a first breakthrough by using continuous assembly and flow systems that made parts find their way into finished products Video: Ford Model T - 100 Years Later (5 mins) 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

Use of technical tools

Statistical quality control. Seven tools of quality.

Malcolm Baldrige National Quality Award Objectives

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

(2) LEAN Supply Chain Relationships

Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities Firms develop lean supply chain relationships with key customers. Mutual dependency and benefits occur among these partners.

Four Absolutes of Quality

The definition of quality is conformance to requirements The system of quality is prevention. Performance standard is zero defects. The measure of quality is the price of nonconformance

The Role of Workers, Management, and Suppliers

The goal is NOT to reduce the number of people in an organization, it is to use people resources more wisely.

Assemble-to-Order (ATO)

attempts to combine the benefits of both strategies - getting products into customers' hands quickly while allowing for the product to be customizable

Transportation

Unnecessary movement of materials or products

Motion

Unnecessary movement of people. Multiple hand-offs

Extra-Processing

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

Make-to-Order (MTO)

a manufacturing strategy that typically allows customers to purchase products that are customized to their specifications.

Engineer-to-Order (ETO)

a more dramatic evolution of a Make-to-Order supply chain

One issue of MTS is

to avoid having excess inventory. Companies today that operate with an MTS model struggle to make the correct product at the correct time in the correct quantities.

Cause and Effect Diagrams (Fishbone or Ishikawa diagrams

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

Engineer to Order (ETO)

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

Assemble to Order (ATO)

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

defects

Anything that does not meet the acceptance criteria

People involvement:

All employees responsible to identify quality problems. All employees trained to use technical tools.

Total Quality Management

An integrated organizational effort to improve quality at every level: Quality Gurus Voice of the Customer Costs of Quality Quality Tools ISO 9000

Seven Tools of Quality Control:

Cause and Effect Diagrams (aka root cause analysis) Flowcharts Checklists Control Charts Scatter Diagrams Pareto Analysis Histograms

(6) Continuous Improvement (Kaizen)

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

role of mgmt

Create cultural change needed for LEAN to succeed

Waiting

Elapsed time between processes when no work is being done

4) Inventory and Setup Time Reduction

Excess inventory is a waste Reducing inventory levels can uncover production problems Once problems are detected, they can be solved. The end result is a smoother running organization with less inventory investment.

Inventory

Excess products or materials not being processed

Manufacturing Strategies

In this section we will review the manufacturing strategies: Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO) We will also review the implications to customer delivery lead time with each of these manufacturing strategies

suppliers for lean six sigma

Lower costs due to efficient systems. Shorter lead times. Lower safety stock.

7) 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

(3) LEAN Layouts

Move people and materials when and where needed, and as soon as possible Are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another Manufacturing cells Process similar parts or components saving duplication of equipment and labor Are often U-shaped to facilitate easier operator and material movements

LEAN is NOT

NOT a tool box of methods, ideas, or methodologie. Its a a culture

Statistical Process Control

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

Relationship of TCM to Manufacturing Strategy

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

Overproduction

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

operations for lean six sigma

Proper cycle time calculation ensures production according to customer demand. Uniform work flow. Pull production.

Create cultural change needed for LEAN to succeed by

Provide atmosphere of cooperation. Empower workers to take action based on their ideas. Develop incentive system for lean behaviors.

Engineer-to-Order (ETO)

Quality must be part of the entire process, and not just part of purchasing and manufacturing—the typical focus of a repetitive manufacturer

What is Six Sigma?

Six Sigma is a structured and data-driven approach to drive such a near-perfect quality goal, i.e., "Zero Defects"

Engineer-to-Order (ETO)

cost of poor quality can be very high

Job Shop

creates a custom product for each customer. High customization

Value

defined as anything for which the customer is willing to pay

Total Cost of Manufacturing (TCM)

expressed as a cost per unit for each product

Make to Stock (MTS)

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

Pareto Charts

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

LEAN

is composed of three elements working in unison

Make-to-Order (MTO)

is not appropriate for all types of products. It is appropriate for highly configured products such as computer servers, aircraft, ocean vessels, bridges, automobiles, or products that are very expensive to keep in inventory

Make-to-Order (MTO)

manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product but allowing for more flexible customization.

Line Flow

process has standard products with a limited number of variations moving on an assembly line through stages of production

Continuous Flow

process is used to manufacture such items as gasoline, laundry detergent and chemicals. Inflexible processes. High capital investment

Batch

process manufactures a small quantity of an item in a single production run

LEAN

provides value for customers through the use of the most efficient resources possible is standard in many industries often results in: Large cost reductions Improved quality Increased customer service

Total Cost of Manufacturing (TCM)

the complete cost of producing and delivering products to your customers

Value

the inherent worth of a product as judged by the customer and reflected in its selling price and market demand

5-S, or the five pillars of the visual workplace, is a systematic process of workplace organization.

1.Seiri, Organization, Sort -keep only necessary items in the workplace 2. Seiton, tidiness, set in order-arrance items to promote efficient workflow 3. seiso, purity, shine-clean thge work ara so it is neat and tidy 4. seiketsu, ceanliness, standardize-srt standards for a consistently organizes workplace 5. shitsuke, discipline,Sustain - Stick to the rules. Maintain and review standards.

LEAN Manufacturing

A coordinated system producing the exact products desired, delivered in the right quantities, where needed, and Just-in-Time (JIT) The Pull System Visual Signals Small Lot Production Uniform Plant Loading

W. Edwards Deming

Create constancy of purpose to improve product and service Adopt the new philosophy Cease dependence on inspection to improve quality End the practice of awarding business on the basis of price Constantly improve the production and service system Institute training on the job Institute leadership Drive out fear Break down barriers between departments Eliminate slogans and exhortations Eliminate quotas Remove barriers to pride of workmanship Institute program of self-improvement Put everyone to work to accomplish the transformation

Supply Chain Management seeks to incorporate LEAN elements using

Cross-training Satisfying internal customer demand Quickly moving products in the production system Communicating demand forecasts and production schedules up the supply chain Optimizing inventory levels across the supply chain Channel integration - extending alliances to suppliers' suppliers and customers' customers

The Eight Wastes ("DOWN TIME") :

Defects Overproduction Waiting Non utilized talent transportation inventory motio extraprocessing

small lot production Producing only a small amount of product at any one time:

Reduces inventory and excess processing. Increases flexibility allowing the company to respond to changes in customer demands more quickly. Reduces throughput time and gets product to customers more quickly. More responsive to customer demand. Shortens manufacturing lead time and the actual time it takes to produce a product. Setup time must be low so that it is easy to switch from producing one type of product to another.


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