Intro to Supply Chain Management - Chapter 8: Operations Management
Traditional Approach
Supply chains work as "push" systems, and inventory carried to cover up problems
Example: LEAN Layout
refer to slides
Sort
Keep only necessary items in the workplace, eliminate the rest
Non-Utilized Talent
Not using employees full intellectual contribution
Defects
Work not done right the first time such as scrap and rework
LEAN and Six Sigma...
complement one another
LEAN Facilitates a Culture Change
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What do you see?
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Five-S's
Focuses on effective workplace organization and standardization. It allows us to easily spot variation from standard operating conditions. Cleaner, safer work environment Organized, user friendly workstations Open up space and reduce clutter
Operations Management
Refers to managing the process to convert resources into goods and services, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs. The nature of how Operations Management is carried out varies by company and depends on the nature of the products or services in the portfolio.
Waste Categories
Remember the acronym "DOWN TIME"): Defects Overproduction Waiting Non-Utilized Talent Transportation Inventory Motion Extra-Processing
Manufacturing
To process or make raw materials or components into a finished product, especially by means of a large-scale industrial operation, i.e., mass production. Manufacturing involves the entire process of converting the raw material(s) or the component(s) into a finished goods item. It includes the machines used, the personnel involved, inventory handling, warehousing, etc. Manufacturing Management - is the management of all the processes which are involved in manufacturing.
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.
Intermittent Processes
used to produce a large variety of products with different processing requirements in lower volumes.
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 problems.
Set-in-order
Organize and arrange items to promote an efficient workflow
Non-Value Added Incidental Waste
No value created but required by current thinking required by process limitations required by current technology required by current regulations
Sustain
Stick to the rules. Maintain and review the standards
Shine
Clean the work area so it is neat and tidy
The Pull System
Traditional Approach Pull Approach
Job Shop Production (a.k.a., Project Production)
- Creates a custom product for each customer - One-off or small number of items produced, generally one unit manufactured at a time. - High customization - Normally made to customs specifications - Often undertaken by small, specialist businesses- Examples: • Architects - Custom Home Construction • Ship Builders • Road Builders
Line Flow Production (a.k.a., Mass Production)
- For standardized products with a limited number of variations - Product moves on an assembly line through various stages of production - When one task is finished the next task must start immediately, therefore, time taken on each task must be the same - Examples: • Automobile Assembly • Cell Phones • Toilet Paper
Continuous Flow Production
- High capital investment - frequently dedicated to one specific product - Involves a series of processes which raw materials flow through. These processes are very inflexible. - Generally highly automated, and workers act as monitors rather than as active participants. - Typically, production runs 24 hours a day with the end result being a large quantity of finished product - Examples: ─ Laundry Detergent ─ Chemicals ─ Oil Refining / Gasoline ─ Cement
Batch Production
- Manufacturing of a small fixed quantity of an item in a single production run. - Each individual item in the batch goes through one stage of the production process before the whole batch moves on to the next stage. - Aims to achieve better use of equipment - Produces good quality products more economically than manufacturing them individually - Examples: • Bakeries • Textiles • Furniture • Pharmaceuticals
Elements 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
The Five-S's
5-S, or the five pillars of the visual workplace, is a systematic process of workplace organization. Sort Set-in-order Shine Standardize Sustain Were originally Japanese words relating to industrial housekeeping "There is a place for everything, and everything should be in its' place"
TCM -vs- Strategic Alternatives
As volume goes up . . . A. Manufacturing and Procurement costs go down due to economies of scale. Generally-step function applies as more capital is required to produce. B. Inventory and Warehousing costs go up. C. Transportation costs go down, but level off at high volumes as the shipping container gets filled to capacity and another container must be used. https://cdn.discordapp.com/attachments/1028335766813814805/1039926571068293222/image.png
Manufacturing Strategies
Companies must develop a manufacturing strategy that suits the type(s) of products that they produce, their customer's expectations, and their strengths. Manufacturing strategies can vary significantly depending on the product and/or the customer requirements. Developing a manufacturing strategy that suits a company's strengths is essential for establishing and maintaining an effective supply chain.
Non-Value Added Pure Waste
Consumes resources but creates no value for the customer Could be stopped and it would be invisible to the customer
1. 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. Before waste is removed, processes are often scattered, which can negatively affect your customers After waste is removed, processes are more streamlined, resulting in more satisfied customers. You'll also save your organization time and money
LEAN and Six Sigma
LEAN - is an operating philosophy of waste reduction and value enhancement. Lean improves the supply chain "flow" by eliminating waste Six Sigma - is a disciplined, statistical-based, data-driven methodology for identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and in business processes. Six Sigma improves the supply chain "process" by reducing variation
A. LEAN Manufacturing
LEAN Manufacturing is a natural fit within the discipline of Supply Chain Management as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain. 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
LEAN...
LEAN is NOT a tool box of methods, ideas, or methodologies it is philosophy / culture 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 is standard in many industries LEAN regularly results in: Large cost reductions Improved quality Increased customer service
Components of LEAN
LEAN is composed of three components working in unison: A. LEAN Manufacturing B. Respect for People C. Total Quality Management https://cdn.discordapp.com/attachments/1028335766813814805/1039931964922286130/image.png
What Lean is NOT
Laying off employees by the bus load Delivering less or working harder Outsourcing or offshoring A cost reduction program Just a set of "tools" like 5S, kaizen events, etc. Automation or buying a monstrous ERP system Winning a Shingo Prize so as to look Lean
What Lean is
Lean is a management philosophy based on the Toyota Production System (TPS) Objective: Eliminate everything that does not add value (waste) in the customer's eyes Focus and Scop: Using value stream mapping as primary work unit Focusing on improving process performance Having a clear view of the end state Approach and Tools: A wide range of Lean Tools are available Learn-by-doing approach to performance improvement and capability-building
Major Manufacturing Strategies
Make-to-Stock (MTS) Make-to-Order (MTO) Assemble-to-Order (ATO) Engineer-to-Order (ETO)
2. LEAN Layout
Move people and materials when and where needed, and as soon as possible Are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another Manufacturing cells ─ Process similar parts or components saving duplication of equipment and labor ─ Are often U-shaped to facilitate easier operator and material movements
Manufacturing Processes
Part of any manufacturing strategy involves developing a manufacturing process that can create the exact product that has been designed. Although there are differences between companies, many manufacturing processes have certain characteristics in common. Based on these characteristics, processes can be grouped into two broad categories: Intermittent Processes Repetitive Processes
Waiting
People or parts that wait for a work cycle to be completed
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.
Extra-Processing
Processing beyond the standard required by the customer
Overproduction
Producing sooner, faster or in greater quantities than customer demand
In the 1990s, Supply Chain Management combined
Quick Response Efficient Consumer Response (ECR) Just-in-Time (JIT) Keiretsu Relationships The combination of these concepts have emerged as the philosophies and practices known as LEAN Manufacturing
Inventory
Raw material, WIP or finished goods which is not having value added to it
LEAN Layout: McDonalds - Speedee Service System
Richard "Dick" (1909-1998) and Maurice "Mac" (1902-1971) McDonald first opened their restaurant in 1940, but re-created it in 1948 on the model of their "Speedee Service System". The Speedee Service System applied the principles of a LEAN Layout to fast food preparation, and formed the foundation of what Ray Kroc would later leverage into the world's largest food outlet chain, "McDonalds".
Standardize
Schedule regular cleaning and maintenance
3. Inventory, Setup Time & Changeover Time Reduction
Some inventory may be necessary, but excess inventory is waste Excess inventory takes up space, and costs money to hold, maintain, protect, secure, and insure. It ties up financial capital which could be used for other aspects of the business. Reducing inventory can free up capital and reduce holding costs There is less likelihood of waste being created by obsolescence, expiry, spoilage, or damage with lower inventory levels.
LEAN History
Starting in the 1910's, Henry Ford's mass production line was a first breakthrough by using continuous assembly systems that made parts find their way into finished products In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and other techniques to form the basis of what is now known as LEAN. The term LEAN was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World
Manufacturing Strategy -vs- Performance Cycle
The manufacturing strategy defines what cycle time (i.e., lead time) the customer will experience for delivery https://media.discordapp.net/attachments/1028335766813814805/1039922856773038180/IMG_4683.jpg?width=876&height=474
Value-Added Activities
Transform or shape Transform or shape material or material or informationinformation Customer wants it Customer wants it and is willing to pay and is willing to pay for it Done right the first Done right the first time
Transporation
Unnecessary movement of materials or parts between processes
Motion
Unnecessary movement of people, or multiple hand-offs
Understand "Value"
Value is defined as the inherent worth of a product as judged by the customer, and reflected in its selling price and market demand. It is any activity that increases the market, form, or function of the product/service. Things for which the customer is willing to pay.
Work versus Waste
Value-Added Activities FOCUS BELOW FOR IMPROVEMENT Non-Value Added Incidental Waste Non-Value Added Pure Waste
Efficient Consumer Response (ECR)
a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.
Manufacturing Process -vs- Manufacturing Strategy
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Types of Manufacturing Processes
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Benefits of LEAN Waste Reduction
https://media.discordapp.net/attachments/1028335766813814805/1039935018656600164/IMG_4684.jpg?width=881&height=285 Reducing wastes consequently results in: Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs All of these can improve customer satisfaction and provide the company with a competitive advantage!!
Keiretsu Relationships
involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit
Make-to-Order (MTO)
is a manufacturing strategy in which manufacturing starts only after a customer's order is received. — This strategy creates additional wait time for the customer to receive the product, but allows customers to purchase products that are customized to their specifications. The MTO strategy relieves the problems of excessive inventory that is common with the Make-to-Stock strategy. — MTO is not appropriate for all types of products. • It is not appropriate for products where customers expect immediate availability/delivery. Example: Grocery items • It is appropriate for highly configured products. Examples: aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory.
Engineer-to-Order (ETO)
is a manufacturing strategy in which the product is designed, engineered, and built to the customer's specifications after receipt of the order. — It is a more dramatic evolution of Make-to-Order strategy. — ETO involves building a unique product every time. There may be components that are common from one product to another, but the finished product is different each time. — Example: Customized piece of manufacturing equipment In the ETO world, the cost of poor quality can be very high. — 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.
Assemble-to-Order (ATO)
is a manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent. — The ATO strategy requires that the basic parts for the product are already manufactured but not yet assembled. — Once an order is received, the parts are assembled quickly into the finished product which is then sent to the customer. — Example: Dell Laptop Computers ATO is a hybrid strategy, attempting to combine the benefits of both Make-to-Stock and Make-to-Order strategies, getting products into customers' hands quickly while allowing for some customization to take place.**
Total Cost of Manufacturing (TCM)
is the complete cost of producing and delivering products to your customers. - It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product. TCM includes: 1. Manufacturing and Procurement activities 2. Inventory and Warehousing activities 3. Transportation activities
Make-to-Stock (MTS)
means to manufacture products for stock based on demand forecasts. Push system. — Since accurate forecasts will prevent creating excess inventory and avoid stockouts, the critical issue is how to forecast demands accurately. — Most daily necessities such as foods, sundries, and textiles are MTS-type products. The challenge of MTS is to avoid having excess inventory. — Companies that operate with a MTS model tend to hold more inventory just in case they need it, therefore, they struggle to ensure that inventory levels don't get out of control.
TCM is generally expressed as
the cost per unit
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.
Repetitive Processes
used to produce one, or a few, standardized products in high volumes
