Intro Supply Chain Management Chapter 8: Process Management, Lean and Six Sigma in the Supply Chain

ISO 9000 and 14000 Families of Management Standards

International Organizations for Standardization have implemented ISO 9000 and 14000 to govern quality and environmental certification standards of production.

Silo Effect

Internally focused, organizational functions are managed separately, and performance is monitored based on achieving departmental goals. Causes the firm to be reactive and short-term goal oriented. There is no internal functional integration at this stage. Works against channel integration.

Deming's Way

14 Points: 1. Create constancy of purpose for improvement of product and service. 2. Adopt the new philosophy. 3. Cease dependence on mass inspection. 4. End the practice of awarding business on the basis of price tag alone. 5. Constantly improve the production and service system. 6. Institute training. 7. Adopt and institute leadership. 8. Drive out fear. 9. Break down barriers between departments. 10. Eliminate slogans exhortations and targets for the workforce. 11. Eliminate numerical quotas for workers and managers. 12. Remove barriers that rob people of pride of workmanships. 13. Encourage education and self improvement for everyone. 14. Take action to accomplish transformation.

Continuous Improvement

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

Small Batch Scheduling

*Drives down costs* by *reducing purchasing, WIP, and finished good inventories.* It also makes the firm more flexible to meet customer demand. Small production batches are accomplished with the use of kanbans; that generate demand parts at all stages of production creating a pull system. Kanbans are signal cards and a part of JIT inventory purchasing. Movement of materials into work cells sends a signal to different work cells and external suppliers.

Workforce Empowerment or Commitment

*Managers must support Lean Production* by providing subordinates with the skills, tools, time and other necessary resources to identify problems and implement solutions.

Juran's Way

*Quality Planning* - Identify internal/external customers and their needs, develop products that satisfy those needs. Managers set goals, priorities, and compare results. *Quality Control* - Determine what to control, establish standards of performance, measure performance, interpret the difference and take action. *Quality Improvement* - Show need for improvement, identify projects for improvement, implement remedies, and provide control to maintain improvement.

Lean Supply Chain Relationships

*Suppliers and customers* work to remove waste, reduce cost & improve quality and customer service. *JIT purchasing* include delivery of smaller quantites, at the *right time*, delivered to the *right location*, the *right quantities.* Firms developing lean supply chain relationships with key customer create a mutual dependency and set of benefits among their partners.

The Seven Wastes

1. *Overproducing* - Production of unnecessary items to maintain high utilizations. 2. *Waiting* - Excess idle machine and operator time; materials experiencing excess wait time for processing. 3. *Transportation* - excess movement of materials between processing steps; transporting items long distances using multiple handling steps. 4. *Overprocessing* - Non value adding manufacturing, handling, packaging or inspection activities. 5. *Excess inventory* - Storage of excess raw materials, work-in-process and finished goods. 6. *Excess movement* - unnecessary movements of employees to complete a task. 7. *Scrap and rework* - scrap material and product rework activities due to poor quality materials or processing.

SCM Incorporates Lean Elements Using

1. Cross-Training 2. Satisfying internal consumer demand. 3. Quickly moving products in the production system. 4. Communicating demand forecasts & production schedules up the supply chain. 5. Optimizing inventory levels across the supply chain.

Elements of Six Sigma

1. Deming's Way 2. Crosby's Way 3. Juran's Way 4. Malcolm Baldridge National Quality Award 5. ISO 9000 and 14000 Families of Management Standards

Statistical Tools of Six Sigma

1. Flow Diagrams 2. Check Sheets 3. Cause and Effect Diagrams

Variable Control Chart Steps

1. Gather Data when the process in in control. 2. Calculate the mean and the range for each sample. 3. Calculate the overall mean and average range of all the samples. Use the x means to calculate the upper and lower control limits. 4. use the means and control limits to construct x bar and r control charts. 5. Collect samples over time and plot.

Elements of Lean

1. Waste Reduction 2. *Lean Supply Chain Relationships.* 3. *Lean Layouts* 4. *Inventory & Setup Time Reduction* 5. Small Batch Scheduling 6. Continuous Improvement 7. Workforce Empowerment

Consumer Risk

A buyer accepts a shipment of poor quality units because the sample falsely provides a positive answer (Type II Error).

Producer Risk

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

Statistical Process Control

A quality improvement effort that allows firms to *visually monitor process performance*, *compare the performance to desired levels or standards*, and *take corrective action* quickly before process variabilities get out of control and damage products, services and customer relationships. Firms may gather process performance data, create *control charts* to monitor process variability and then collect sample measurements of the process over time and plot on charts.

Lean Manufacturing/ Production/ Thinking

An operating philosophy of *waste reduction & value enhancement* created by Toyota Production System(TPS). Lean has begun to replace the Term JIT. It seeks to economically optimize time, human resources, assets and productivity while improving product and service quality. *Waste elimination shrinks inventories*, *revealing problems* with human resource requirements, queues, lead times, quality and timing in the production process, or with inbound and outbound materials.

JIT

Continuous reduction of waste, improvement, synchronization of material flows within the organization, and channel integration: the extending partnerships in the supply chain.

Attribute Data

Data that indicates some attribute such as color and satisfaction or beauty.

Variable Data

Data that is continuous, such as weight, time, and length.

DMAIC Improvement Cycle

Define Measure Analyze Improve Control

Check Sheets

Determine frequencies for specific problems.

Inventory and Setup Time Reduction

Excess inventory is waste. *The reduction of inventory levels causes production problems that once detected, can be solved. * The end result is a smoother running organization with less inventory investment.

Natural Variations

Expected and random variations that can't be controlled.

Channel Integration

Extending alliances to suppliers' suppliers & customers' customers.

Waste (Muda) Reduction

Firms reduce costs & add value by eliminating waste from the productive system. Waste encompasses, wait times, inventories, material and people movement, processing steps, variability, and any other non value adding activity.

Flow Diagrams/Process Maps

First step to evaluating any manufacturing or service process. They use annotated boxes representing process action elements and ovals representing wait periods, connected by arrows to show the flow of products or customers through the process.

Crosby's Way

Four Absolutes of Quality: -The definition of quality is conformance to customer requirements. - The system of quality is prevention. - Performance standard is *zero defects.* - The measure of quality is the price of nonconformance.

Lean vs. Six Sigma

Lean production is all about reducing waste, whereas Six Sigma is all about improving quality. They are not competing philosophies.

Lean Layouts

Move people and materials when and where they are need as soon as possible. Lean layouts are very visual 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. They are often U-shaped to facilitate easier operator and material movements.

Malcolm Baldridge 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. Categories Measured: - Leadership - Strategic Planning - Customer & Market focus - Information and analysis. - Human Resource Focus - Process Management - Business Results

Five-Ss

Originally came Toyota. The idea that implementation would result in a cleaner workplace, better organization and safety, thereby reducing processing waste and improving productivity. Translates to *Organization, Tidiness, Purity, Cleanliness, and Discipline.*

Six Sigma & Supply Chain Management

Poor Quality products and services cause negative chain reactions such as greater levels of safety stock, lost time and productivity from product and component repairs, increased costs of customer returns and warranty repairs, and finally loss of customers and damage to reputations.

Pareto Charts

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

Lean Green Practices

Reduce the cost of environmental management, lead to improved environmental performance, and increase the possibility that firms will adopt more advanced environmental management. Firms that are *carbon neutral* offset their carbon footprint of a firms operations, by planting trees for example.

Efficient Consumer Responce (ECR)

Speed and Flexibility

Quick Response (QR)

Speed and Flexibility

4 Stages of Successful Supply Chain Evolution

Stage 1 (Internal Focused): Firm is internally focused & functions are managed separately. Silo effect is reactive and short term goal oriented. Stage 2 (Functional Integration): Firm integrates efforts & resources among internal functions. Stage 3 (Internal Integrations): Firm links suppliers/customers with firm's processes. Stage 4 (External Integration): Firm broadens supply chain influence beyond immediate or first-tier suppliers & customers.

Six Sigma

Statistics based decision making framework designed to make significant quality improvements in value adding processes. An overall quality improvement program that stresses a commitment by the firm's top management to help the firm identify customer expectations and excel in meeting and exceeding those expectations. Six Sigma has a goal of having a defect occur in a process 3.4 times out of every million measurement opportunities. Six Sigma seek to permanently fix the root causes of problems.

Lean Six Sigma

Term used to describe the melding of lean production and Six Sigma quality practices. Both use high quality input materials, WIP, finished goods. And continuous improvement.

Lean Production & Six Sigma

The philosophies & practices that combined Quick Response, Efficient Consumer Response, JIT, and Keiretsu Relationships in the 90s the achieve low costs along with high levels of quality and responsiveness throughout the supply chain.

Variable Control Charts

Two types of charts. The x bar chart tracks central tendency of sample means. The R chart tracks sample ranges.

Cause and Effect Diagrams

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

Assignable Variations

Variations that have a specific cause and can be controlled.

Acceptance Sampling

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

Six Sigma Training Levels

Yellow Belt - Basic understanding of the Six Sigma methodology and the tools within the DMAIC process. Green Belt - A specially trained team member allowed to work on small, carefully defined Six Sigma projects. Black Belt - Has a thorough knowledge of Six Sigma philosophies and principles. Exhibits leadership, understanding dynamics, roles and responsibilities. Master Black Belt - a proven mastery of process variability reduction, waste reduction, and growth principles and can effectively present training at all levels.