CHAPTER 8: OPERATIONS MANAGEMENT WITH LEAN AND SIX SIGMA

Six Sigma is structured and data-driven approach to drive a near-perfect quality goal=>

"Zero Defects"

Seven Tools of Quality Control

1. Check Sheets 2. Histograms 3. Pareto Analysis 4. Cause & Effect Diagrams 5. Flow Diagrams 6. Control Charts 7. Scatter Diagrams

Malcolm Baldrige National Quality Award (Categories Measured)

1. Leadership 2. Strategic Planning 3. Customer and Market Focus 4. Information and Analysis 5. Human Resource Focus 6. Process Management 7. Business Results

Total Cost of Manufacturing includes

1. Manufacturing and Procurement Activities 2. Inventory and Warehousing Activities 3. Transportation Activities

As volume goes up...

1. Manufacturing and Procurement costs go DOWN (economies of scale) 2. Inventory and Warehousing sots go UP 3. Transportation goes DOWN, but level off at high volumes as the shipping container gets filled to capacity and another container must be used

Components 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

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 => helps a company determine the benefits and savings generated by potential process improvements

7. Continuous Improvement (Kaizen) (LEAN)

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

Cost of Quality can be divided into the:

Cost of Good Quality => appraisal costs => prevention costs Cost of Poor Quality => internal failure costs => external failure costs

Two Key Methodologies in Six Sigma

DMADV DMAIC

Waste Categories

Defects Overproduction Waiting Non-Utilized Talent Transportation Inventory Motion/Movement Extra-Processing DOWNTIME

Steps a Six Sigma Practitioner typically follows

Define [the problem] => What is the customer's expectation of the process? Measure [the current process] => What is the frequency of defects? Analyze [the cause of the prob] => Why, when, and where do defects occur? Improve [implement and verify the solution] => How can we fix the process? Control [maintain the solution] => How can we make the process stay fixed?

DMADV Methodology

Define=>Measure=>Analyze=>Design=>Verify data=driven quality strategy for designing products & processes used when CREATING A NEW PRODUCT DESIGN or BUSINESS PROCESSES that is more predictable and defect free

DMAIC Methodology

Define=>Measure=>Analyze=>Improve=>Control to improve an EXISTING PRODUCT or BUSINESS PROCESS most widely adopted and recognized Six Sigma methodology in use

Based on the common characteristics in manufacturing processes, they can be grouped into Two Broad Categories

Intermittent Processes => used to produce a large variety of products with different processing requirements in Lower Volumes Repetitive Processes => used to produce one, or a few, standardized products in High Volumes

defined quality as "fitness for use"; developed the concept of the cost of quality

Joseph Juran; => Quality Planning => Quality Control => Quality Improvement

4. Small Batch Scheduling can be facilitated through the use of (LEAN)

Kanbans => "Signal" or "Card" used for communication (visual) between workstations => authorize production or the movement of materials to the next workstations => could be facilitated through the use of a computer software program, ERP system

developed one of the first tools in the quality management process, the Cause and Effect diagram, which is also called the "ishikawa" or "fishbone" diagram

Kaoru Ishikawa; => father of quality circles => proponent of continuous customer service, customer should continue receiving service even after receiving the prodcut

Three Components of LEAN working in unison

LEAN Manufacturing Total Quality Management Respect for People

Role of Supplier

LEAN involves building long-term supplier relationships => partnerships with suppliers => improving process quality => sharing info

ATO is a hybrid strategy attempting to combine the benefits of both ______ and _____ strategies.

MTS and MTO; getting products to customers quickly while allowing for some customization to take place

Key Principles of TQM are:

Management Commitment Employee Empowerment Fact Based Decision Making Continuous Improvement Customer Focus

6. Workforce Commitment (LEAN)

Managers must support LEAN Manufacturing by providing subordinates with the Skills, Tools, Time, and other necessary Resources to Identify Problems, and Implement Solution

Coined the phrase "quality is free" as defects are costly; introduced the concepts of zeros defects, and focus on prevention and not inspection

Philip Crosby; Four Absolutes of Quality 1. quality is conformance to requirements 2. system of quality is prevention 3. performance standard is zero defects 4. measure of quality is the price of nonconformance

Non-Value Added Process

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

Value Added Process

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

(Intermittent) Batch Process

Product Variety: High Volume: Low Strategy: MTO/ATO/MTS Customer LT: Long

(Repetitive) Line Process

Product Variety: Limited Volume: High Strategy: ATO/MTS Customer LT: Short

(Intermittent) Project Process

Product Variety: Very High Volume: Very Low Strategy: ETO/MTO Customer LT: Very Long

(Repetitive) Continuous Process

Product Variety: Very Limited Volume: Very High Strategy: MTS Customer LT: Very Short

In the 1990s, Supply Chain Management combined:

Quick Response => rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale. Efficient Consumer Response => strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers. Just in Time (JIT) => inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs Keiretsu Relationships => involve companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit

3. Setup Time and Changeover Time Reduction (LEAN)

Setup Time => time taken to prepare and format the manufacturing equipment and systems for production Changeover Time => time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product If the setup time can be minimized => more time available to produce

Five S's of the visual workplace, systematic process of workplace organization

Sort => keep only necessary items in the workplace, eliminate the rest Straighten => organize and arrange items to promote an efficient workflow Shine => clean the work area so it is neat and tidy Standardized => schedule regular cleaning and maintenance Sustain => stick to the rules; maintain and review the standards

LEAN + Six Sigma =>

Speed and Accuracy

Types of Variations and Data found on Control Charts

Variations =>Natural: expected and random (can't control) => Assignable: have specific cause (can control) Data => Variable: continuous (ex. eight) => Attribute: indicate some attribute such as color and satisfaction or beauty

Considered the father of TQM, the creator of the Plan-Do-Check-Act Model

W. Edwards Deming; 14 points to guide companies in quality improvement => cease dependence on inspection to improve quality => constantly improve the production and service system => institute leadership => break down barriers between departments => put everyone to work to accomplish the transformation

LEAN is an operating philosophy of ____ _______ and ___ ______.

Waste Reduction and Value Enhancement; originally created as the Toyota Production System (TPS) by key Toyota Execs

Lake Analogy

Water => inventory; when high, don't see the rocks beneath Rocks => hidden obstacles potentially causing major issues in the supply chain => Lowering inventory will help expose the hidden problems; once problems are detected, they can be solved; smoother running supply chain with less inventory investment

Six Sigma Training and Certification Levels

Yellow Belt Green Belt Brown Belt Black Belt Master Black Belt

Line Process has standard products with

a limited number of variations moving on an assembly line through stages of production

Cause and Effect Diagrams used to

aid in brainstorming and isolating the causes of a problem

3. People Involvement (SS)

all Six Sigma team members must be assigned specific well-defined Six Sigma "Roles" with measurable objectives companies must involve ALL their employees, and provide opportunities and incentives for employees to focus their talents and ability to satisfy customers ALL employees are responsible to Identify Quality Problems

The challenge of MTS is to _____________.

avoid having excess inventory; companies with MTS model tend to hold more inventory in case they need it; struggle to ensure that inventory levels don't get out of control

Six Sigma is a disciplines, statistical-based, data-driven methodology for identifying and removing the ____ __ _______ (errors) and ____ _______ in manufacturing and in business processes.

causes of defects, minimizing variability in manufacturing

Total Cost of Manufacturing (TCM) is the

complete cost of producing and delivering products to your customers; incorporates both fixed and variable costs used in the manufacturing, storage and delivery of the product; generally expressed as costs/unit

Six Sigma History

concept of Six Sigma originated by Motorola in 1980's creating the methodology and copyrighting it as well; became famous when Jack Welch made it central to his successful business strategy at General Electric in 1995.

Operation Management refers to managing the process to ___________, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs.

convert resources into goods and services

In the ETO strategy, ________ can be very high.

cost of poor quality; 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

Cost of Good Quality: Appraisal Costs

costs associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications include costs for => testing, evaluating, and inspecting the quality of incoming materials, process setups, and products, against agreed upon specifications => quality assessment and approval of suppliers => performing audits to confirm that the quality system is operating properly

Cost of Good Quality: Prevention Costs

costs related to the design, implementation, and maintenance of the quality management system; planned and experienced before actual products or materials are acquired/produced include costs for => establishments of specs for incoming materials, processes, products, and services => creation of quality plans => development, preparation, and maintenance of quality training => creation and maintenance of the quality system

Role of Management

create the cultural change needed for LEAN to succeed; => provide an atmosphere of cooperation => empower workers to take action based on their ideas => develop incentive systems to recognize and reward LEAN behaviors

Project Process creates a

custom product for each customer; high customization

1. Quality Defined by the Customer (SS)

customers Expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more => vital to provide what the customers need to achieve customer satisfaction

Check Sheet is used to

determine frequencies for specific problems

Pull Approach

each stage in the supply chain requests quantities needed from the previous stage no excess inventory is generated reducing inventory levels can also uncover production problem

The goal of LEAN is the

elimination of waste and the minimization of the amount of all resources used in the operation of a company; LEAN regularly results in: => large cost reductions => improved quality => increased customer service

Large batches can

exacerbate the Bullwhip effect as production in large batches creates an uneven workload;

Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including ___ ____ or ____ __ _____.

excess inventory or shortages of inventory

The MTO strategy relieves the problems of _________ that is common in MTS strategy

excessive inventory; => however not appropriate for all types of product; appropriate for highly configure products such as aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory

4. Small Batch Scheduling (LEAN)

facilitate producing at the same rate as customer demand; create smooth workload as production can be synchronized with customer demand, facilitating a pull system increases flexibility allowing for quick responses to changes in customer demand throughput times in manufacturing goes down; WIP inventory goes down, reducing costs and eliminating or minimizing waste in the system

The goal is to have the ____ ____ of high quality suppliers possible without unnecessarily increasing risk.

fewest number

Prior to creating Control Charts,

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

Respect for People

flatter hierarchy than traditional organizations; ordinary workers are given greater responsibility; supply chain members work together in cross functional teams

Continuous Process is used to manufacture such items as

gasoline, laundry detergent and chemicals; inflexible processes, high capital investment

Histogram is a

graphical display where data is grouped into ranges (bars)

Control Charts are

graphs to study how a process changes over time allows firms to => visually monitor process performance => compare the performance to desired levels of standards => take corrective action as necessary

Value is the ____ ____ of a product judged by the customer, and reflected in its selling price and market demand.

inherent value

The Goal of Six Sigma is to attain

less than 3.4 Defects Per Million Opportunities (DPMO)

Manufacturing Management is the

management of all the processes which are involved in manufacturing.

Total Quality Management (TQM) is 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 => combination of quality and management tools designed to increase business and reduce losses resulting from wasteful practices

Make to Stock (MTS) is

manufacturing products for stock based on demand forecasts => Push System => accurate forecast prevents creating excess inventory and avoid stock outs =>most daily necessities such as foods, sundries, and textiles

Engineer to Order (ETO) is

manufacturing strategy where product is Designed, Engineered, and Built to the customer's specifications after receipt of the order; => building a unique product every time; may be some common components but the finished product is different each time

Make to Order (MTO) is

manufacturing strategy where production starts ONLY when the customer places an order; =>creates additional wait time for customer but allows for customized products

Assemble to Order (ATO) is

manufacturing strategy where products ordered are put together quickly and are customizable to a certain extend => requires basic parts for the product already manufactured but not yet assembled => once order received, parts are assembled quickly into the finished product

2. LEAN Layouts (LEAN)

move people and materials when and where needed and as soon as possible; => visual with operators at one processing center able to monitor work at another

Cost of Poor Quality: Internal Failure Costs

occur when the product or service does not meet the designed quality standards, and are identified before the product or service is delivered to the customer include costs for => defective product or material that cannot be used, sold, or repaired, and the costs associated with correction of these defects => unnecessary work or inventory resulting from errors => 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; include costs for => handling and responding to customer complaints => failed products that must be replaced or services that are repeated => repair of returned products and products still int the field => handling and investigation of rejected or recalled products, including return transportation costs

Carbon-Neutral

offsetting the carbon footprint of a firm's operations => Sustainability is a LEAN concept

Role of Workers

perform tasks and actively pursuing company goals; => improve production process => correct quality problems => monitor quality => work in teams

LEAN is NOT a tool box of methods, ideas, or methodologies, it is ____/_____.

philosophy/culture

4. Uniform Plant Loading (LEAN)

planning up to Capacity in earlier time periods to meet demand in later time periods; aka "front loading" the plan or "leveling" the plan production schedule is frozen in the up-front time period (ex. month) helps suppliers better plan production

Pareto Analysis is for

presenting data in an organized fashion, indicating process problems from Most To Least severe (bars)

Manufacturing cells in LEAN Layouts

process similar parts or components saving duplication of equipment and labor; often U-shaped to facilitate easier operator and material movements

Manufacturing involves processing or making __________, especially by means of a large-scale industrial operation, ex. mass production

raw materials/components into a finished product; includes the machines used, the personnel involved, inventory handling, warehousing, etc.

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

1. Waste Reduction => results in (LEAN)

reduced cycle times greater output better productivity improved quality reduced costs

3. Inventory (LEAN)

reducing inventory can free up capital and reduce holding costs; less likelihood of waste being created by obsolescence, expiry, spoilage, or damage with lower inventory levels.

Six Sigma is concerned with the permanent fix to quality problems and seeks to identify and correct ___ ____ of the problem

root cause

LEAN goals and objectives

satisfying internal Customer Demand communicating demand forecasts and production schedules up the supply chain quickly moving products in the production system optimizing inventory levels across the supply chain increasing the value, capabilities, and flexibility of the workforce through Cross-Training Extending Collaboration and alliances beyond just 1st tier suppliers and customers to include 2nd and 3rd tier suppliers and customers as well

Flow Diagram is a

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

Batch Process manufactures a

small quantity of an item in a single production run

LEAN History

starting in 1910 Ford's mass production line was the first breakthrough by using continuous assembly and flow systems 1940 two Japanese men created TPS which incorporated ford's system into other techniques to make LEAN LEAN coined in 1988

2. Use of Technical Tools (SS)

statistical quality control to solve problems and improve quality level of the product as well as the company; all employees should be trained to use the seven tools of quality

Malcolm Baldrige National Quality Award (Objectives)

stimulate firms to improve recognize firms for quality achievements establish guidelines so that orgs can evaluate their improvements and provide guidance to others

excess inventory

takes up space and costs money to hold, maintain, protect, secure, and insure ties up financial capital which could be used for other aspects of the business

Voice of the Customer (VOC)

term used in business to describe the in-depth process of capturing internal and external customer's expectations, preferences, likes, and dislikes => customer interviews => market surveys => focus groups => customer specifications => observation => warranty data => field reports => complaint logs

Scatter Diagrams are

the values of two variables plotted along two axes, to reveal any correlation

Ideal production schedule is

to produce every product asap and at the same rate as customer demand; Large batches can exacerbate the Bullwhip effect as production in large batches creates an uneven workload;

Companies must develop a manufacturing strategy that suits the _________ that they produce, their ______, and their _____.

types of products, customer's expectations, and their strengths

5. LEAN Supply Chain Relationships (LEAN)

with Key Customers and Key Suppliers => easy exchange of information, demand data, and visibility of status => mutual dependency and benefits => work together to remove waste, reduce cost, and improve quality and customer service