SCM Exam 2
Sales and Operating Planning (S&OP)
establishes overall production, workforce, and inventory levels (tactical capacity planning)
Productivity
outputs/inputs
Profit Leverage Effect: Sales must increase by
(COGS savings/Pretax profit margin) to the same effect PLE= amount saved/profit margin
Calculating Pretax Profit Margin
(Earnings/Sales)*100
Efficiency formula
(actual output/standard output) x 100%
pure services
*Intangible Product *Output cannot be Stored (No Inventory) *High Customer Contact and Involvement *Typically Small Markets *Quality is Perceived Subjectively
Pure manufacturing
*Tangible Product *Output can be Stored (inventory) *Low Customer Contact and Involvement *Typically Large Markets *Quality Can be Measured Objectively
The nature of the Service Package
Service Package: All the physical and intangible activities that a service organization provides Physical: Requires capital expenditures, material costs, tangible assets Intangible: Requires training, skill development, knowledge assets
Misconception about lean 2
"Just-In-Time (JIT) is when parts/supplies/ work arrives at the last possible moment." TRUTH: This misconception probably came from people who saw Kanban without understanding how it works. 2-Bin Kanban Example: Process A Process B Process B sends an empty bin to Process A to be filled while using parts from a full bin. Process A begins working to fill the empty bin as soon and as quickly as possible. The filled bin arrives at Process B before they run out of parts in their working kanban bin. To an outsider, this looks like the full replacement bin has arrived "at the last minute" before Process B runs out of parts in their working bin. Actually, JIT means that Process A has enough flexibility to start work AS SOON as a signal for working is received. Perhaps a better name would be "Just-As-Soon"
Misconceptions about Lean and Six Sigma 1
"Lean can't work here - we are different. It can only be applied to cars (or manufacturing, or whatever other industry in which you have seen an example of lean)." TRUTH: Lean (and Six Sigma) is about improving processes. All businesses have processes .... so all businesses can improve and benefit from adopting Lean. Lean and Six Sigma are increasingly be adopted in a variety of business settings (see previous slides)
Misconception about lean 4
"Lean is all about cost-cutting and results in much of the workforce getting fired." TRUTH: Lean does reduce costs and, by removing waste, we can often find ways to increase quality and increase productivity with fewer people. However, Lean does not involve firing people. Most successful Lean organizations have a "No-Layoff Policy" stating that continuous improvement of processes will not result in people being laid off or fired. This is because: We need the cooperation of EVERYONE in the organization to improve processes. When we improve our processes to better serve customers, our demand will increase .... and we'll need those extra people.
Misconception about Lean
"Lean is going to cost a lot of money to introduce to our organization." TRUTH: To introduce most concepts about Lean and actually begin having meaningful, measurable improvements in organizational processes will cost very little money ..... or, in many cases - completely free! Because Lean involves coaching everyone in the organization to be able to identify and solve problems, one of the biggest expenses in introducing Lean is training.
Misconception about lean 3
"Lean means forcing people to work faster and harder with fewer resources." TRUTH: The two "pillars" of lean are: Continuous Improvement through identifying and removing waste from processes. Respect for People - by including everyone in improvement. When we remove waste from a process, we are left with value-added activities. This enables us to produce more in less time while actually doing the value-added work SLOWER.
Pareto Chart
"Visualizing the most important changes" Graphically orders categories of numerical data in descending order so that the most important categories are easily recognized
Calculating COGS as a percent of sales
% COGS = (COGS/sales)*100
Planning and control
A set of tactical and execution-level business activities that includes: -master scheduling -material requirements planning -production activity control -vendor order management
The Procure to pay cylcle
- Ordering - Follow up and expediting - Receipt and Inspection - Settlement and Payment - Records and maintenance
Reasons to Make or Insource
Better control over quality Better visibility of process Better control over social and environmental impact To protect intellectual property For Core Competencies To utilize excess capacity To reduce handling/storage costs When product life-cycles are stable
Independent demand
Typically for Finished Goods - products made up of purchased or produced components and materials.
The 7 basic Quality Improvement Tools
-Check sheet:A structured form for collecting and analyzing frequency count data -Pareto chart: A bar graph that visually displays frequency count data from highest to lowest -Cause & Effect diagram: Also known as a fishbone or Ishikawa diagram A graphical tool that allows one to explore potential causes for a problem Used within a problem-solving team to brainstorm and identify root causes to a problem There are more effective Root Cause Analysis methods used by companies today. -Run chart: Graph of measured data over time Often graphed with a horizontal line showing the average of the data -Scatter diagram:Graph of pairs of numerical data to determine potential relationships between two variables Used in conjunction with Regression (a statistical calculation) -Histogram: Bar graph showing how often each different value in a set of data occurs -Control charts: Graphs used as a basic form of Statistical Analysis to determine whether changes are caused or random Statistically Significant Control Limits are calculated and plotted Charts are evaluated to see if data patterns violate expected random variation Data points with less than 0.3% probability of occurring randomly are investigated *****Statistical Acceptance Sampling Based upon normally occurring statistical distributions Allows a company to inspect a small portion (sample) of a group of parts and make assumptions about the quality of the entire group.
Advantages of MRP
-MRP is directly tied to the master production schedule and indicates the exact timing and quantity of orders for all components. -MRP allows managers to trace every order for lower-level items through all the levels of the BOM, up to the Master Production Schedule. -MRP tells a firm and its suppliers precisely what needs to be made when. -MRP is automated when using an ERP system -When used within an ERP system, requirements can be calculated and communicated across Supply Chain Partners
Special considerations in MRP
-MRP requires organizational discipline and accurate information. -MRP must be able to accommodate uncertainty (variability in quantities, timing, quality, schedule) -MRP nervousness - A term used to refer to the observation that any change, even a small one, in the requirements for items at the top of the bill of material can have drastic effects on items further down the bill of material.
Dependent Demand
Typically for Raw Materials and Work-In-Progress - components and materials used to create Independent Demand Items.
Strategic Sourcing Process
1. Assess opportunities 2. Profile internally and externally 3. Develop the sourcing strategy 4. Screen suppliers and create selection criteria 5. Conduct supplier selection 6. Negotiate and implement agreements
Types of Improvement for business processes
1. Bench marking: The process of identifying, understanding, and adapting outstanding practices from within the same organization or from other businesses to help improve performance. types: Internal, Proces, competitive (organizational processes) 2.Bench marking often results in sharing of "Best Practices" 3. Where to obtain benchmarking data: Industry Publications and Rankings Quality and Benchmarking Non-Profit Organizations Benchmarking Consulting Companies Non-Competitor Companies who are willing to share Competitor Companies who are willing to share
6. Negotiate & Implement Agreements
1. Competitive Bidding 2. Negotiating 3. Contracting
Phases of Project Management
1. Concept Phase 2. Project Definition Phase 3. Planning Phase 4. Performance Phase 5. Post completion Phase
Types of Process Mapping
1. FlowChart Process Map 2. SwimLane Process Map 3. Value Stream Process map 4. Line Balancing Process map
Why is SCM critical
1. Global Sourcing- competing against world class organizations 2. Performance Impact - affecting the way your company performs 3. Financial Impact- direct influence on bottom-line profits
What do delays and errors lead to?
1. Increase in cost 2. Reducing the scope 3. Agreeing to a later delivery date (time)
Product Customization 4 levels
1. Make-to-stock(MTS) 2. Assemble- to-order(ATO) 3. Make-to-order(MTO) 4. Engineer-to-order(ETO)
Service processes- service positioning 3 dimensions on which they can differ and compete
1. Nature of the service package 2. Degree of customization 3. Level of customer contact
Development Process
A process that seeks to improve the performance of primary and support processes (Process Improvement)
Types of business processes
1. Primary Process 2. Support Process 3. Development Process
Commonly Utilized lean tools
1. Visual Management Normal and abnormal conditions visible Make waste and problems obvious Make processes simple, straightforward, obvious Make it easier to do the right thing and harder to do the wrong thing Common Visual Controls: Outlining, shadowboards, color coding 2. Kanban System Limits inventory levels Used within an organization to signal production Used with suppliers to signal replenishment Common Type: Two (or Multi) Bin One container contains parts being used Empty container signals production/replenishment EXAMPLE: Kitchen - keep 2 boxes of snack-bars Common Type: Card Only one container of parts on hand A card or signal midway through the container signals production/replenishment EXAMPLE: Tissue boxes with different color tissues when box is almost empty Manually signals production needs without complex scheduling software Recent popular topic - Personal Kanban for personal scheduling of tasks
Critical Path Method
A sequence of tasks for which there is no extra time available. Delays on the Critical Path will delay the entire project.
8 Types of waste
7 Wastes TYPICALLY recognized by Lean Professionals: T ransportation - Moving materials/tools from place to place I nventory - Having to provide space/resources to store materials M otion - Workers or machines that are moving, but not getting any work done W aiting - MATERIAL/PRODUCTS that are motionless and not being worked O verproduction - Producing more than the customer needs before the customer needs it O verprocessing - Performing work .... when the work was already done previously D efects - Errors in production Eighth commonly recognized waste: Unused Employee Ingenuity: Not using the creative minds of ALL workers in Problem-Solving.
Merchandise Inventory
A balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular time.
Available to promise
A field in the master schedule record that indicates the number of units that are available for sale each week, given those that have already been promised to customers.
Gantt Chart
A graphical tool used to show expected start and end times for project activities and to track actual progress against these time targets. Gantt Charts Demonstrate: Task Duration Task Precedence Task Milestones & Deadlines Task Responsibility Critical Tasks/Critical Path Tasks With Slack Project Completion Date
Critical Path Method
A network-based technique in which there is a single time estimate for each activity. - evaluating activity on node CPM.. Provides a graphical display of project complexity Provides a graphical display of activity or task precedence Provides an estimate of the earliest completion-time of the project Indicates which activities or tasks are "critical" and cannot be delayed Indicates which activities are non-critical and how long they can be delayed without delaying the entire project (slack).
Primary Process
A process that addresses the main value-added activities of an organization: Creating value for external customers.
Support Process
A process that performs necessary, albeit not value-added activities: Creating value for internal customers.
How do you know if a weighting scheme is valid?
All weights will equal 1
Project management body of knowledge
An inclusive term that describes the sum of knowledge within the profession of project management. As with other professions, such as law, medicine, and accounting, the body of knowledge rests with the practitioners and academics that apply and advance it. The complete project management body of knowledge includes proven traditional practices that are widely applied and innovative practices that are emerging in the profession. The body of knowledge includes both published and unpublished materials. This body of knowledge is constantly evolving. PMI's PMBOK® Guide identifies a subset of the project management body of knowledge that is generally recognized as good practice.
Projected ending inventory
Best estimate of what inventory levels will look like at the end of each planning period based on current information. EI of last period + MPS - max(F or OB) = PEI
Total cost per product analysis
Calculate one time costs dived by amount of products, the incremental cost by how many it creates, and any other direct materials per product costs.
Material Requirements Planning (MRP)
Calculates the timing and quantities of material orders needed to support the master schedule
Supply Chain Disruptions
Caused by natural disasters, economic or political events.
competitive bidding
Competitive Bidding: Requesting bids from potential suppliers with a formal RFQ RFQ-Request for Quotation: Includes all the characteristics required or desired Includes: descriptions, specifications, quantities, delivery, terms of payment, contract length, etc. USE WHEN: Price is a dominant criteria, requirements are straightforward
incremental cost
Costs that are incurred only after a certain number of products are produced. "Each time you produce X, a cost of $Y is incurred." Examples: Direct Labor, Transport Cost, Direct Maintenance Cost, Setup Cost Divide "Number of Units Needed" by the threshold "X" and multiply by the incremental cost $Y to calculate "Total Costs"
One time cost
Costs that are incurred only when a product or service is first produced. Examples: Product Design, Fixture Purchase, Mold/Die Purchase One-Time Costs are added directly to "Total Costs"
Indirect costs
Costs that are not tied directly to the level of operations or supply chain activities. "If you make/do more, the unit cost does not change." Examples: Administrative Costs, Overhead, Depreciation, Basic Utilities Difficult to calculate accurately. For this class, indirect costs will be given as an allocated Direct Cost ($/unit)
Direct Costs
Costs tied directly to the level of operations or supply chain activities. "If you make/do more, the unit cost increases directly." incurred." Examples: Part-Time Labor, Direct Material Costs, Direct Energy Costs Multiply "Direct Costs" by the "Number of Units Needed" to calculate "Total Costs"
Total Quality Management (TQM) Principles
Customer focus Leadership involvement Continuous improvement Employee empowerment Quality assurance Supplier partnerships Strategic quality plan
Profit leverage Effect
Decreasing the money spent on purchasing functions increases profit FASTER than increasing revenue as a result of marketing and sales. Ex. Every $1 saved in purchasing, lowers COGS by $1 and contributes $1 to bottom line profits.
Group technology/cellular layout
Dedicating equipment and people to producing all the products within a product family Product Family: A set of products that require similar processing Common in companies that utilize "Lean" concepts
Ethical Sourcing
Ethical Treatment of Workers - diversity & minorities, child labor, worker abuse, human rights, animal rights, safety, pay scales Fair Trade Products - Paying fair prices for products manufactured or grown by a disadvantaged producer in a developing country. Requires Verification and Management
Value Stream Process map
Diagrams the entire creation of value through a company. Each product category is mapped separately. Arranged left to right, starting at raw materials and tracking the creation of value through to the customer. Describes who does the work, in what quantities, the time it takes to do the work, and delays encountered. The top of the Value Stream Map describes how information from the customer influences the process. Used to decrease process delays and waste and to make sure the process can meet the customer requirements.
What is crashing?
Efforts to shorten the duration of a project or to make up delays that have occurred.
Trends in Supply chain management
Ethical Sourcing: Sustainable Sourcing Supply Chain Disruptions Risk Assessment and Strategy
What is slack?
Extra time that is available for task completion. Tasks with available slack may be delayed without delaying the entire project.
When happens when customization occurs early in the supply chain?
Flexibility in response to unique customer needs will be greater. Lead times to the customer will tend to be longer. Products will tend to be more costly.
What happens when customization happens late in the supply chain?
Flexibility in response to unique customer needs will be limited. Lead times to the customer will tend to be shorter. Products will tend to be less costly.
The level of customer contract
Front Room - Direct customer interface, high customer contact. Activities designed to guide the customer through the process - "Onstage Activities" Back Room - Activities done away from the customer, low customer contact. Activities carried out much like a manufacturing process - "Backstage Activities" and "Support Processes" Mapped using "Service Blueprinting" Challenge: communicating customer needs throughout the service process
Product Tree Structure
Graphical or "outline" representation off all the components involved in building the Independent Demand Item
Sustainable Sourcing
Green Purchasing - Overall reduction in packaging, materials, waste, byproducts with a goal of environmental sustainability Sustainability -Replenishment of natural resources
Manufacturing Processes
Hybrid Manufacturing process: A group of processes that combine the characteristics, and hence advantages, of mire then one of the classic processes. 1. Machining centers 2. Group Technology/ Cellular layout
Reasons to Buy or Outsource
If low volumes increase costs To maintain strategic flexibility To gain access to state-of-the art technology and processes Cost and/or Quality Advantage When suppliers are reliable When relationships have been established When product life-cycles are short
When purchasing reduced COGS by a quantity the money or percent saved does what?
Increases Pretax Profit by the same amount Ex: Reducing COGS by 10M, increases Pretax Profit by $10
Negotiating
Interactive and iterative process for determining purchase conditions Involves: Multiple communications to arrive at an agreement USE WHEN: Exact specification and performance is unknown (new product development) and the buyer needs input or guidance or collaboration from the supplier.
FlowChart Process Map
Involves a well defined start and finish connected by a variety of process steps. Typically arranged top-down (but may be arranged left to right) to describe a process from start to finish. Usually involves both tasks and options. There may be several possible paths to get from the start to the finish. Used to understand and simplify complex processes.
SwimLane Process Map
Involves a well defined start and finish connected by a variety of process steps. Parallel work flows can be clearly seen. Typically arranged left to right to describe a process from start to finish. The SwimLane Process Map is arranged on a timeline. Tasks on the left must occur prior to tasks on the right. The various functions/people/specialties each have a horizontal "swimlane" within which all of their responsibilities are listed. Often used to describe processes that are managed by software.
What are purposes of mapping?
It creates a common understanding of the content of the process: its activities, its results, and who performs the various steps. It defines the boundaries of the process. It provides a baseline against which to measure the impact of improvement efforts. It makes the process visible so that people can discuss it, trouble-shoot it, improve it. It forces people to address what is actually happening in the organization. The mapping activity itself often highlights problems that can be addressed & improved.
Juran's Cost of Quality
Juran's Costs of Quality: small Prevention Costs avoid large Failure Costs External failure costs - Costs associated with defects in a product or service that reaches the customer. Loss of sales, product returns, warranty claims, liability claims Internal failure costs - Costs caused by defects that occur prior to delivery to the customer. Scrap, rework, downtime, price reductions Appraisal costs - Costs a company incurs for assessing its quality levels. Inspection, testing, data analysis Prevention costs - Costs an organization incurs to prevent defects from occurring. Planning, management, product/process design, training
3. Develop the Sourcing Strategy: Portfolio Analysis
Kraljic's Portfolio analysis - A structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing oppurtunity
Lean's perspective on waste
Lean clearly defines waste in processes - activities that do not create value for the customer. ALL processes involve A LOT of waste. Some waste is unnecessary - we can eliminate this. Some waste is difficult to eliminate - we work to creatively reduce this. Some waste is necessary - we work to restructure processes to avoid the waste.
Contracting
Legal formalization of the buyer-supplier relationship and agreements Fixed-price contract - Stated price does not change. Cost-based contract - Price of the good or service is tied to the cost of some other key input(s) or other economic factors.
Line Balancing Map
Lists all the individual tasks of all the functions/people involved in a process. Graphically describes how long each function/person takes to complete a process compared to a target rate for the process. Used to "rebalance" the process by changing the responsibilities of individual functions/people: Allowing overworked functions/people to transfer some of their responsibility to underutilized functions/people.
Degree of Customization
Lower customization allow for standardized processes. Primary measurements are related to productivity and cost Higher customization requires flexible processes. Primary measurement becomes customer satisfaction .
What does MRP calculate
MRP calculates future needs for components & raw materials by "Exploding the Bill of Material." 1. Planning Lead time 2. Backward scheduling
Backward scheduling
MRP calculates when dependent demand items must be ordered and when sub-assembly components must be produced in order to complete the independent demand item on schedule
Settlement and Payment
May be paid through Electric Funds Transfer (EFT) Payment is aligned with Quotation, Receipt, and Inspection
What software is used often in project management?
Microsoft project
What are layouts designed to do?
Minimize movement of Materials & People Maximize utilization of Machines & People Maximize productivity & quality of Machines & People Manage complexity - improve management of processes Manage interactions between Machines, People, Customers, Stakeholders
Dual Sourcing
Multiple sourcing across only two suppliers Enables stronger relationships while reducing risk
How to solve for Profit margin
Pretax earnings/sales revenue
Profits margin
Pretax earnings/sales revenue
Pretax Profit Margin
Pretax/Sales Revenue
Lean and inventory
Processes NEED inventory to flow (you can't cook a meal without ingredients) But inventory also HIDES problems in the process (it is easy to ignore the fact that you don't have a reliable and consistent shopping process if you have shelves full of canned goods and cereal) Lean systems strive to SLOWLY reduce inventory levels. Reducing inventory will eventually expose a problem (waste) that can be systematically evaluated and eliminated. Lean managers Encourage and Appreciate problems emerging - because it gives them a chance to improve the process.
Engineer to order
Products are designed and produced from the start to meet unusual customer needs or requirements. Completely Customized.
Assemble to order
Products that are customized only at the very end of the manufacturing process.
Make-to-stock
Products that require no customization.
Make to order
Products that use standard components but the final configuration of those components is customer-specific. Customized from a Standard "Menu" of options.
Ordering
Purchase Order (PO) - A document that authorizes a supplier to deliver a product or service and often includes key terms and conditions such as price, delivery, and quality requirements [details taken from the Quotation or Proposal] Legally binding agreement when formally accepted by the supplier
SSQDC, qualitative data from SCM recruiting companies
Safety: Internal and External Sustainability: Green and Ethics Quality: Consistency, Conformance, Service Delivery: Reliability, Speed, Capacity Cost: Total Cost of Ownership
Lean & Six Six Sigma
Six Sigma: An improvement framework that targets problem-solving and consistency using a well-defined set of analytical tools - many of which are based on statistics. Lean: A "perspective" that identifies and removes waste from processes and builds a culture where everyone in the organization is involved in improvement. LeanSigma or Lean Six Sigma: A conscious effort to incorporate both Lean and Six Sigma in the way an organization is managed.
Receipt and Inspection
Statement of work (or scope of work) - Terms and conditions for a purchased service that indicate, among other things, what services will be performed and how the service provider will be evaluated. 100% Incoming Inspection (for new suppliers or new purchases) Sample Inspection (for established suppliers and purchases, utilizes statistical principles)
What are layouts? What do they contribute to?
Structural Layout is an important factor in designing a manufacturing or service process - Reliability - safety - responsiveness - comfort - speed - accuracy - productivity ...
Records Maintenance
Supplier Relationship Management (SRM) Software
Risk Assessment and Strategy
Take a Broad View of Potential Risks What are all the risks throughout the supply chain? Evaluating upstream as far as possible. Identify duplicate suppliers that are in the same geographic region. Prioritize Risk Potential Significance: In what ways would a disruption affect your company? Likelihood: How quickly would a disruption affect your supply? How long would a disruption affect your supply? How flexible is your system to respond to such a disruption? Develop Risk Management Strategies Evaluating relationships with diverse suppliers Holding higher inventory at various locations within the supply chain Developing alternative sources of supply
Bill of Materials
The "recipe" for an Independent Demand Item - a list of all the Dependent Demand Items used to create the Finished Product.
Quality frameworks main concept
The Entire Organization Influences Quality
3. Develop the Sourcing Strategy
The Make-or-Buy Decision - A high-level, strategic decision regarding which products or services will be provided internally (Make) and which will be provided by external supply chain partners (Buy).
Steps of Kraljic's portfolio analysis
The Routine Quadrant - Readily available products or services representing a relatively small portion of a firm's purchasing expenditures. (Low Cost & value, low risk) The Leverage Quadrant - Standardized and readily available products or services representing a significant portion of spend. (High cost & value, High risk) The Bottleneck Quadrant - Products or services with unique or complex requirements that can be met only by a few potential suppliers. (Low cost, high risk) The Critical Quadrant - Products or service with unique or complex requirements coupled with a limited supply base. (High cost & value, high risk)
What is the master production schedule (MPS)?
The amount of product that will be finished and available for sale at the beginning of each week. The MPS drives more detailed planning activities, such as Material Requirements Planning (MRP)
Planning horizon
The amount of time the master schedule record or MRP record extends into the future. The longer the production and supplier lead times, the longer the planning horizon must be.
What is project management?
The application of knowledge, skills, tools, and techniques to project activities to meet project requirements. Projects are non-routine, making planning difficult Projects are complex, involving a variety of skills and capabilities Projects typically require significant levels of cross-functional and inter-organizational coordination. Projects have clear starting and ending points after which the people and resources dedicated to the project are reassigned.
1. Assess Opportunities
The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement. PURPOSE: Determine where efforts to change purchasing practices will have the most influence.
Single sourcing
The buying firm depends on a single company for all or nearly all of a particular item or service. Advantages: Volume Discounts, Reduction in Variability, Enables Strong Relationships Disadvantages: Increased Supply Risk, Supplier Dependence, Must Monitor Best Practices
multiple sourcing
The buying firm depends on a single company for all or nearly all of a particular item or service. Advantages: Volume Discounts, Reduction in Variability, Enables Strong Relationships Disadvantages: Increased Supply Risk, Supplier Dependence, Must Monitor Best Practices
Cross Sourcing
The buying firm uses a single supplier for one particular part or service and another supplier with the same capabilities for a different part or service. Balances risk while allowing for strong relationships with suppliers
Postcompletion Phase
The fifth of five phases of a project where the project manager or team confirms the final outcome, conducts a post-implementation meeting to critique the project and personnel, and reassigns project personnel.
Concept Phase
The first of five phases of a project. Here, project planners develop a broad definition of what the project is and what its scope will be.
Performance Phase
The fourth of five phases of a project where the organization actually starts to execute the plan. Costs, Quality, and Speed of this portion of the project is a function of how well managers have completed the first three phases of the project.
Conformance Costs: Taguchi's Quality Loss Function
The higher the deviation from the design specifications, the higher the cost. Processes with lower variation will reduce costs.
Total Cost of Quality Curve
The lower the defect rate, the lower the costs.
Continuous Improvement
The philosophy that small, incremental improvements can add up to significant performance improvements over time. 1. Kaizen- practice of making small, incremental process improvements over time using Lean principles 2. DMAIC - Define, Measure, Analyze, Improve, Control 4. Two Second Lean: intentionally making a small change in your process at the beginning of each day. 5. Deming Cycle: Plan, do, check, act 6.PDSA: Plan, do, study, adjust 7. FOCUS: Find, organize, clarify, understand, select
what is mapping?
The process of developing graphic representations of the organizational relationships and/or activities within a business process.
COGS
The purchased cost of goods from outside suppliers
Profit margin
The ratio of earnings (profit) to sales (revenue) for a given time period.
Project Definition Phase
The second of five phases of a project where project planners identify how to accomplish the work, how to organize for the project, the key personnel and resources required to support the project, tentative schedules, and tentative budget requirements. Budget estimates become more accurate.
Planning Phase
The third of five phases of a project where project planners prepare detailed plans that identify activities, time and budgets targets, and the resources needed to complete each task, while also putting into place the organization that will carry out the project. Milestones - Performance , Time, & Budget targets scheduled throughout the project timeframe used to track whether the project is progressing as planned Acquisition and scheduling of resources
Planning Lead time
The time from when a component is ordered or produced until it arrives and is ready to use
Recent Developments in Lean Thinking
Utilizing concepts from Lean, Six Sigma, and Theory of Constraints together Lean Supply Chain Management - Extending Lean principles throughout the supply chain - to suppliers and customers. Agile: Lean Startups/Entrepreneurism/Software Development - Applying lean to removing waste from the process of starting a business from the ground-up. (HOT application area right now) Lean and Six Sigma is being successfully utilized in ALL types of businesses. These businesses are actively pursuing Lean improvements with amazing success: Manufacturing - all types of products Healthcare (HOT application area right now) Food Services - restaurants Construction Banking and Financial Services Accounting (quickly rising in popularity) Pharmaceuticals and Pharmacies Travel and Transportation Services Insurance & Law Services Government Information Technology and Software Development Retail & Customer Services Farming
Define quality
Value Perspective: Quality is how well the characteristics of a product or service align with the needs of a specific customer. Conformance Perspective: Quality is how closely a product or service was made or performs as measured against a pre-established standard.
5. Conduct Supplier Selection
Weighted-point evaluation system (multiply weights by supplier to find performance)
2. Profile Internally and Externally
[Internal] Category profile -Understanding all aspects of a particular sourcing category that could ultimately have an impact on the sourcing strategy. [External] Industry Analysis - Profiling the major forces and trends that are impacting an industry, including pricing, competition, regulatory forces, substitution, technology changes, and supply/demand trends.
Material Requirements Planning (MRP)
a planning process that translates the master production schedule into planned orders for the actual parts and components needed to produce the master schedule items
PMI
an indicator of economic health for manufacturing and service sectors. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.
Production Activity Control (PAC)
assures that in-house manufacturing takes place according to plan; also helps manufacturing managers identify potential problems and take corrective actions
Vendor order management
assures that materials ordered from supply chain partners are received when needed; also helps purchasing managers identify potential problems and take corrective actions
Master Scheduling
determines when specific products will be made, when specific customer orders will be filled, and what products/capacities are still available to meet new demand
Define cross functional
involving a variety of functions (people) in business processes
Machining Centers
machines or series of machines that complete several manufacturing steps
Benefits of using Lean & Six Sigma / LeanSigma
result in AMAZING organizational transformations such as: Reduced inventory levels: 70% - 97% Reduced floor space required: 50% - 70% + Reduced delivery lead time: 50% - 95% Reduced operations costs: 40% - 60% Increased productivity: 10% - 100%+ Improved quality: 30% - 80% On-time delivery: approaching 100% Increased customer satisfaction: 30% - 80% Annual cost savings >$1,000,000 per trained professional Results such as this can be achieved with EXISTING employees and EXISTING technology
Profit Leverage Effect
savings/profit margin Used when trying to find out how much other department will have to do in sales to keep up with reduction of COGS
