Chapter 8 Operations Management with LEAN and Six Sigma
Non-Utilized Talent
Underutilizing people's talents, skills or knowledge. De-motivating the workforce by not asking for input or recognizing success
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
Cause and Effect Diagram,
also called "Ishikawa" or "fishbone" diagram. With this tool, the user can see all possible causes of a problem to help find the root cause.
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.
Setup Time and Changeover Time
are both considered a waste as they are times when the equipment is not performing its intended function; producing product.
Both setup and changeover
are non-value added operations and the time taken should be minimized as much as possible.
Job Shop -
creates a custom product for each customer. (artist, craftsman) ETO/MTO
Joseph Juran -
defined quality as "fitness for use". He developed the concept of the cost of quality.
Kaoru Ishikawa -
developed one the first tools used in quality management - the cause and effect diagram, which is also called the "Ishikawa" or "fishbone" diagram.
Make to Stock (MTS) features
economies of scale, large volumes, long production runs, low variety, and multiple distribution channels
Safety
has been added as a key standard of workplace management
Assembly Line -
has standard products with a limited number of variations moving through stages of production (Cars, Televisions, Smart phones) ATO/MTS
Engineer-to-Order (ETO)
is a manufacturing process in which the component is designed, engineered, and built to customer specifications only after the order has been received.
Make-to-Order (MTO)
is a manufacturing strategy that allows customers to purchase custom products to their specifications.
Assemble-to-Order (ATO) "Postponement" Strategy
is a manufacturing strategy where final products are produced quickly as ordered by customers. This enables products to be customized to a certain extent.
Six Sigma -
is a quality philosophy that emphasizes a commitment toward excellence, encompassing suppliers, employees, and customers
LEAN -
is an operating philosophy of waste reduction and value enhancement and was originally created as the Toyota Production System (TPS) by key Toyota executives.
Total Cost of Manufacturing (TCM)
is the complete cost of producing and delivering products to your customers.
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.
Setup time
is the time taken to prepare and format the manufacturing equipment and systems for production.
Engineer to Order (ETO)
is used when products are unique and extensively customized for the specific needs of individual customers
W. Edwards Deming -
is widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model.
DMADV Acronym:
Define Measure Analyze Design Verify: which is a data-driven quality strategy for designing products & processes.
DMAIC Acronym
Define Measure Analyze Improve Control:
(3) Inventory & Setup / Changeover Time Reduction
Excess inventory is a waste and hides other problems (safety stock covers inefficiencies) By reducing inventory levels you can highlight production problems to be solved such as Bottlenecks, idle time, unbalanced flow... The end result is a smoother running production process with less inventory investment. Inventory takes up space and increases costs.
Inventory
Excess products or materials not being processed
Natural Variations
Expected and random (can't control)
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.
Statistical Tools - The core of quality improvement
Firms: Gather process performance data Create control charts to monitor process variability Then collect sample measurements of the process over time and plot on charts.
Master Black Belt Certification
Is a career path. A Master Black Belt has successfully led ten or more teams through complex Six Sigma projects.
Total Cost of Manufacturing (TCM) part 2
It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product. It includes all costs associated with: Production and Procurement activities Inventory and Warehousing activities Transportation activities TCM is generally expressed as a cost per unit for each product.
Assemble-to-Order (ATO) "Postponement" Strategy Part 4
Most high tech products with customization available (computers, audio systems), Quick serve restaurants, and individualized products are ATO.
(5) LEAN Supply Chain Relationships PArt 3
Moving products efficiently through the system
Production Kanban
Production Kanban tells a manufacturing cell to produce to refill an empty container
Overproduction
Production before it is needed, or in excess of customer requirements. Providing a service that is not needed.
(4) Small Batch Scheduling and Uniform Plant Loading
Production in small batches enables production to be synchronized with customer demand. It increases flexibility allowing the company to respond quickly to changes in customer demand. It can drive down costs by reducing raw materials, WIP, & finished goods inventories minimizing waste in the system.
Use of technical tools
such as statistical quality control. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company.
The ATO strategy requires
that the main sub assemblies for the product be completed and inventoried along with the final assembly parts.
Brown Belt Certification
A Six Sigma Green Belt who has passed the Black Belt certification examination but has not yet completed their second Six Sigma project
Green Belt Certification
A Six Sigma trained individual that can work as a team member on complex project and also lead small, carefully defined Six Sigma projects.
Black Belt Certification
A full-time quality professional who has a thorough knowledge of Six Sigma philosophies and principles, and possesses technical and managerial process improvement / innovation skills.
After Waste Reduction
After Waste is removed, processes are more streamlined, resulting in more satisfied customers. You'll also save your organization time and money
They allow firms to
Allows firms to: Visually monitor process performance Compare the performance to desired levels or standards Take corrective action as necessary
Defects
Anything that does not meet the acceptance criteria
Before Waste Reduction
Before Waste is removed, processes are often scattered, which can negatively affect your customers
W. Edwards Deming Quality Improvement Part 2
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
Manufacturing Strategies
Companies develop a manufacturing strategy aligned to their production strategy (Chapter 3). The strategy is to satisfy customer demand while balancing manufacturing costs and inventory levels.
Continuous Flow -
Consistent manufacturing of the same product. (gasoline, chemicals, laundry detergent, PC Boards). MTS
Variable Data
Continuous (e.g., weight)
Continuous Improvement (Kaizen)
Continuous approach to reduce costs by eliminating waste and / or improving process, delivery, and quality. Big results can come from the accumulation of many small changes over time KAI = CHANGE; ZEN = FOR THE BETTER CHANGE FOR THE BETTER
W. Edwards Deming Quality Improvement Part 1
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
(5) LEAN Supply Chain Relationships PArt 2
Customer Focused to satisfy end customer demand
Quality is defined by the customer:
Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more.
D.O.W.N.T.I.M.E.
Defects OverProduction Waiting Non-Utilized Talent Transportation Inventory Motion Extra-Procesing
DPMO
Defects per Million Opportunities Number of Defects * 1,000,000 /[(opportunity for defect) * (Number of units)]
Problem before Uniform Plant Loading
Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand contributes to inefficiency and increases costs.
Quality Planning, identify internal / external customers & needs:
Develop products satisfying those needs. Mangers set goals, priorities, and compare results.
Waiting
Elapsed time between processes when no work is being done
(5) LEAN Supply Chain Relationships
Eliminating waste in the supply chain by building alliances with suppliers, partners & customers to remove waste, reduce cost, improve quality and customer service by working together.
Quality Control, determine what to control:
Establish standards of performance. Measure performance, interpret the difference, take action.
Yellow Belt Certification
Has a basic understanding of Six Sigma Methodology and the tools in the DMAIC problem solving process.
Assignable Variations
Have a specific cause (can control)
Make-to-Order (MTO) Part 3
Highly configured products such as computer servers, aircraft, ocean vessels, houses, bridges, custom furniture and custom tooling are MTO. Often includes services with the product (architect, designer, technology expert)
Quality Improvement, show need for improvement:
Identify projects for improvement. Implement remedies Provide control to maintain improvement.
LEAN History Part 1
In the 1910's, Henry Ford's mass production line was the first manufacturing breakthrough by using continuous assembly and flow systems that made parts find their way into finished products
LEAN History Part 2
In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and U.S. supermarket distribution systems to form the basis of what is now known as LEAN.
(5) LEAN Supply Chain Relationships PArt 4
Increase Supply chain visibility beyond just 1st tier suppliers to include 2nd, and 3rd tier suppliers
Attribute Data
Indicate some attribute such as color and satisfaction, or beauty.
LEAN and Six Sigma complement one another;
LEAN focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations LEAN + Six Sigma ➔ Efficient and Accurate
Lean
LEAN is NOT a tool box of methods, ideas, or methodologies LEAN is a culture
Lean Continues
LEAN provides value for customers through the use of the most efficient resources possible LEAN is a standard in many industries LEAN often results in: Large cost reductions Improved quality Increased customer service
LEAN Green Practices:
Lean practices reduce waste and lead to Lean Green practices: Eliminating waste in production and SCM eliminates wasting natural resources Sustainable management processes get adopted Focus on improving environmental management performance. Implement ISO14000 processes
MTS Companies focus
MTS Companies focus on balancing supply and demand, developing accurate forecasting models and taking action to reduce excess inventory or increase supply.
The manufacturing strategies include:
Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO)
The key principles of TQM are:
Management Commitment Employee Empowerment Fact Based Decision Making Continuous Improvement Customer Focus
(6) 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
Manufacturing Strategies Objectives
Objectives: Satisfy demand Manage capacity efficiently Manage inventory levels Minimize cost: Labor Materials Plant and Equipment
Assemble-to-Order (ATO) "Postponement" Strategy Part 2
Once an order is received, the product is assembled quickly and shipped to the customer. This is called "Postponement" Strategy
Operations Management
Operations Management refers to the design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy.
(5) LEAN Supply Chain Relationships PArt 5
Optimize inventory levels across the supply chain
History + Usefulness of 6 Sigma
Pioneered by Motorola in 1987, it is a statistics-based decision-making framework designed to make significant quality improvements in value-adding processes Especially useful in manufacturing with a large number of parts
After Uniform Plant Loading:
Planning production to capacity in earlier time periods to create inventory to meet demand in later time periods. Enables efficient use of resources. (Plant, machinery, human) Requires accurate demand plans with long forecast periods
Example of Lean layout
Sandwich Shop Before Lean Layout was a mess everything disorganized. After its all organized in order
Seiso
Shine - Clean the work area so it is neat and tidy
(4) Small Batch Scheduling and Uniform Plant Loading Continued
Shortens manufacturing lead time however setup / change over time must be low so that it is easy to switch from producing one product to another. Small batch scheduling can be facilitated through the use of Kanbans ("visual signal" or "card.")
Assemble-to-Order (ATO) "Postponement" Strategy Part 3
Similar to MTS, demand forecasting and inventory management are key processes to a successful ATO process. The main sub assemblies and final configuration parts must be forecasted and inventoried.
LEAN Layouts
Simplified manufacturing operation which moves people and materials when & where needed to achieve smooth product flow Have clear lines of visibility (unobstructed) with operators at one processing center able to monitor work at another. A quality or bottleneck can be quickly identified and corrected.
Classical versus Six Sigma Quality
Six Sigma Focuses in depth and reduces the number of problems or issues that might occur
People involvement:
Six Sigma follows a structured methodology, and has defined roles for the participants.
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.
Seiri
Sort - Keep only necessary items in the workplace, eliminate the rest
Seiketsu
Standardize - Schedule regular cleaning and maintenance
Seiton
Straighten - Organize and arrange items to promote an efficient workflow
Manufacturing cells
Sub assembly process for similar parts or components saving duplication of equipment & labor Positioned close to the manufacturing line to feed the line directly vs building inventories to be stored
Shitsuke
Sustain - Self Discipline. Maintain good work habits
Total Quality Management (TQM) continued
TQM is a combination of quality and management tools designed to increase business and reduce losses resulting from wasteful practices. Six Sigma can be an integral part of Total Quality Management.
Goal of Operations Management
The goal is to convert materials and labor into goods and services as efficiently and effectively as possible, while also controlling costs to maximize profits. This entails managing the process of creating the goods and services.
Goal of 6 Sigma
The goal of Six Sigma is to attain near quality perfection - less than 3.4 Defects Per Million Opportunities (DPMO) (99.99966%)
Make-to-Order (MTO) PArt 2
The MTO strategy only manufactures the end product once the customer places the order. Lead time for customer delivery is longer and customers pay for the ability to customize Raw materials are carried in inventory with a few common sub assemblies.
Buyers's Risk:
The buyer accepts a shipment of poor-quality units because the sample quality level did meet the acceptance standard (type II error)
Supplier's Risk:
The buyer rejects a shipment of good-quality units because the sample quality level did not meet the acceptance standard (type I error)
Philip Crosby definition of quality
The definition of quality is conformance to requirements - do it right the first time The system of quality is prevention. - take preventative action Performance standard is zero defects. - commit to eliminate defects The measure of quality is the price of nonconformance . - the loss from poor materials and workmanship
Engineer-to-Order (ETO) Part 2
The essence of ETO is building a unique product every time. Project Management is a key skill for profitable success In ETO, reputation for quality and innovation are key to success. Complicated technology solutions such as operations centers, stadiums, amusement rides are ETO.
NAture of Operations Management
The nature of how Operations Management is carried out varies by company and depends on the nature of the products and/or services in the portfolio.
LEAN History Part 3
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. (Based on Toyota)
Example of Inventory & Setup / Changeover Time Reduction
The water represents inventory. The rocks represent hidden obstacles, problems, and issues Inventory can hide underlying problems. Lowering inventory will help to expose the hidden problems. Once the problems are detected, they can be solved.
DMADV Methodology:
This methodology is used when the company wants to create a new product design or process that is more predictable and defect free.
Total Quality Management (TQM)
Total Quality Management (TQM) is a management philosophy based on the principle that every employee must be committed to maintaining high standards of work quality in every aspect of a company's operations.
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.
Withdrawl Kanban
Withdrawal Kanban is used to tell previous cells that more parts are needed
Efficient Consumer Response (ECR) -
a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.
quality gurus (experts)
all contribute to the basic framework
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, and focus on prevention, not inspection.
Keiretsu Relationships -
cooperative coalitions with cross financial dependence involves companies throughout the value chain, remaining independent but working closely together for mutual benefit
Procurement and Production
costs per unit go down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows)
Transportation costs per unit
costs per unit go down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)
Inventory and Warehousing
costs per unit go up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.)
Make-to-Stock (MTS) -
manufacture products for inventory based on demand forecasts... a push supply chain. Forecast accuracy is key to satisfying customer demand, managing inventory levels and controlling costs. Most equipment intensive manufacturing (automobiles), commodities (processed foods, sundries) and low value products are MTS.
Batch -
manufactures a small quantity of an item in a single production run (Milk and other processed food, clothing) MTO/ATO
Make to Order (MTO)
products are not produced until customer order is received
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.
Assemble to Order (ATO) is
when sub assemblies are made, stocked to forecast, but products are not assembled until customer order is received
DMAIC Methodology:
which is a data-driven quality strategy for improving products & processes. This methodology is used when the company wants to improve an existing business process. DMAIC is the most widely adopted and recognized Six Sigma methodology in use.