OPS Final Exam

employees often make two basic mistakes when attempting to control a process:

1. adjusting a process that is already in control, or 2. failing to correct a process that is out of control.

Poka-Yoka: Many other examples can be cited:

Fast-food restaurants use automated frying machines that can only be operated one way, and the french fries are prepackaged and the equipment automated to reduce the chance of human error. A device on a drill counts the number of holes drilled in a workpiece; a buzzer sounds if the workpiece is removed before the correct number of holes has been drilled. Computer programs display a warning message if a user tries to close a file that has not been saved. A flash drive can be inserted only one way, preventing damage to the drive and the data. Hospitals use simple checklists to ensure that procedures are done correctly; for example, one study found that using checklists for anti-infection measures cut the infection rate in intensive care units by 66 percent. Many applications of pokayoke are deceptively simple, yet creative, and usually they are inexpensive to implement.

Common Metrics Used to Measure Supply Chain Performance

Metric Category: Delivery reliability Responsiveness Customer-related Supply chain efficiency Sustainability Financial

Service quality is

consistently meeting or exceeding customer expectations (external focus) and service-delivery system performance criteria (internal focus) during all service encounters. Excellent service quality is achieved by the consistent delivery to the customer of a clearly defined customer benefit package, and associated process and service encounters, defined by many internal and external standards of performance. Performance standards are analogous to manufacturing specifications. For example, "on-time arrival" for an airplane might be specified as within 15 minutes of the scheduled arrival time. The target is the scheduled time, and the tolerance is specified to be 15 minutes.

It is important for you to understand how operations management influences the design and management of value chains. Today's organizations face difficult decisions in balancing

cost, quality, service, and sustainability objectives to create value for their customers and stakeholders, and in coordinating the many activities that take place within value chains.

Internal failure costs are

costs incurred as a result of unsatisfactory quality that is found before the delivery of a good or service to the customer. Examples include: 1) scrap and rework costs including material, labor, and overhead; 2) costs of corrective action arising from time spent determining the causes of failure and correcting problems; 3) downgrading costs such as revenue lost by selling a good or service at a lower price because it does not meet specifications; and 4) process failures such as unplanned equipment downtime or service upsets or unplanned equipment repair.

The center-of-gravity method

determines the x and y coordinates (location) for a single facility.

Value (Supply) chains focuses on

determining the best network structure and geographical locations for facilities to maximize service and revenue and to minimize costs.

Offshoring decisions involve

determining what value creation, support, and/or general management processes should move to other countries

Unlike Deming, however, Juran

did not propose a major cultural change in the organization, but rather sought to improve quality by working within the system familiar to managers. He argued that employees at different levels of an organization speak in their own "languages." top management speaks in the language of dollars; workers speak in the language of things; and middle management must be able to speak both languages and translate between dollars and things. To get the attention of top managers, quality issues must be cast in the language they understand—dollars. Hence, Juran advocated the use of quality cost measurement, discussed later in this chapter, to focus attention on quality problems. At the operational level, Juran focused on increasing conformance to specifications through elimination of defects, supported extensively by statistical tools for analysis. Thus, his philosophy fit well into existing management systems.

Different management skills are required for

different operational structures. For example, Walmart's value chain, though very large, is focused on purchasing and distribution, and is controlled from a centralized location in Bentonville, Arkansas. In contrast, General Electric's value chain, which encompasses such diverse businesses as medical imaging, jet engines, appliances, and electrical power generation, are all quite different. Each business is a profit center with its own unique market and operating conditions. Consequently, the operational structure is decentralized.

Reverse logistics refers to

managing the flow of finished goods, materials, or components that may be unusable or discarded through the supply chain from customers toward either suppliers, distributors, or manufacturers for the purpose of reuse, resale, or disposal.

Process capability refers to

natural variation in a process that results from common causes.

High quality is required in

nearly every product, such as in banking, medical care, toys, cell phones, and automobiles.

A process that is in control does not

need any changes or adjustments

Offshoring is

the building, acquiring, or moving of process capabilities from a domestic location to another country location while maintaining ownership and control.

Just-in-time (JIT) was introduced at Toyota during the 1950s and 1960s to address

the challenge of coordinating successive production activities.

JIT systems are based on

the concept of pull rather than push. In a JIT system, a key gateway workstation (such as final assembly) withdraws parts to meet demand and therefore provides real-time information to preceding workstations about how much to produce and when to produce to match the sales rate. By pulling parts from each preceding workstation, the entire manufacturing process is synchronized to the final assembly schedule. JIT operating systems prohibit all process workstations from pushing inventory forward only to wait idle if it is not needed.

The integration of services in manufacturing was recognized some time ago.

"In the same way that service businesses were managed and organized around manufacturing models during the industrial economy, we can expect that manufacturing businesses will be managed and organized around service models in this new economy."4 A goods-producing company can no longer be viewed as simply a factory that churns out physical goods, because customer perceptions of goods are influenced highly by such facilitating services as financing and leasing, shipping and installation, maintenance and repair, and technical support and consulting. Today we see digital content, such as Web sites, streaming videos, social networks, and e-mail newsletters, becoming an important aspect of a company's value proposition. Coordinating the operational capability to design and deliver an integrated customer benefit package of physical and digital goods and services is the essence of operations management.

Visual signaling systems are known as

"andon", drawing from the Japanese term from which the concept first originated. For example, if a machine fails or a part is defective or manufactured incorrectly, a light might turn on or a buzzer might sound, indicating that immediate action should be taken. Many firms have cords that operators can pull that tell supervisors and other workers that a problem has occurred. Some firms, such as Honda (on the manufacturing floor) and JPMorgan Chase (at its call centers), use electronic "scoreboards" to keep track of daily performance. These scoreboards are located where everyone can see them and report key metrics such as volume, quality levels, speed of service, and so on.

In manufacturing, control is generally applied at three key points in the supply chain:

(1) at the receiving stage from suppliers, (2) during various production processes, and (3) at the finished-goods stage.

Facility network and location decisions can become complex, especially for a global supply chain, which must consider

(1) shipping costs between all demand and supply points in the network, (2) fixed operating costs of each distribution and/or retail facility, (3) revenue generation per customer location, (4) facility labor and operating costs, and (5) construction costs.

Poka-yoke

(POH-kah YOH-kay) is an approach for mistake-proofing processes using automatic devices or methods to avoid simple human error.

Seven simple Quality Control tools:

1) flowcharts, 2) checksheets, 3) histograms, 4) Pareto diagrams, 5) cause-and-effect diagrams, 6) scatter diagrams, and 7) control charts

Lean operating systems have four basic principles:

1. elimination of waste, 2. increased speed and response, 3. improved quality, and 4. reduced cost. As simple as these may seem, organizations require disciplined thinking and application of good operations management tools and approaches to achieve them.

SCOR Model: Deliver

4. Deliver—Managing orders, transportation, and distribution to provide the goods and services. This entails all order management activities from processing customer orders to routing shipments, managing goods at distribution centers, and invoicing the customer.

SCOR: Return

5. Return—Processing customer returns; providing maintenance, repair, and overhaul; and dealing with excess goods. This includes return authorization, receiving, verification, disposition, and replacement or credit.

list the lean tools and approaches discussed in the book

5Ss Visual Signalling Systems (adon) SMED (Single minute exchange of dies) Btching Quality at the source Total Productive Maintenance

15-3 The GAP Model

A framework for evaluating the quality of both goods and services and identifying where to focus design and improvement efforts is

The decision to offshore or outsource involves a variety of economic and noneconomic issues. Exhibit 2.7 summarizes the key issues in these decisions.

Exhibit 2.7 Things to Consider When Making Offshore Decisions

9-1a The Supply Chain at Dell, Inc.

In Chapter 2 we described the value chain at Dell, Inc. from the Pre-and postproduction services perspective. Here we describe the goods producing supply chain from the perspective of Exhibit 9.1 that Dell uses to support its value proposition of mass customization. Purchasing (sourcing) is a vital part of Dell's supply chain, and Dell creates strong partnerships with global suppliers responsible for delivering thousands of parts. For example, keyboards are sourced in Mexico, soundcards in France, and power supplies, disk drives, and chips in Asia. Supplier selection is based on cost, quality, speed of service, and flexibility; and performance is tracked using a supplier "report card." About 30 key suppliers provide 75 percent of the parts; most suppliers maintain 8 to 10 days of inventory in multivendor hubs close to Dell global assembly plants. Dell introduced the idea of a make-to-order supply chain design to the computer industry and has long been recognized for outstanding practices in this area. Dell pulls component parts into its factories based on actual customer orders and carries no finished goods inventory, relying on information technology to drive its supply chain. This also provides the customer with the newest technology, rather than buying a computer that has been sitting in a warehouse for months. Suppliers' component part delivery schedules must match Dell's factory assembly schedules, which in turn must be integrated with shipping schedules. Each factory worldwide is rescheduled every two hours, and at the same time updates are sent to all third-party suppliers and logistics providers. On one end of Dell's 250,000-square-foot factory in Round Rock, Texas, purchased parts are unloaded from supplier's trucks. Most of them come from supplier's warehouses, so technically, Dell does not own the parts until they are unloaded at the factory. This helps to lower inventory holding costs, and therefore prices. The parts are loaded into bins and moved around the factory in elevated and automated conveyors. Elevators lower these parts to assembly workstations where it takes about five hours to completely assemble, burnin, load software, and test all of it. From the time the customer orders a PC, it is often ready to ship in about one hour and may cost more to ship a Dell PC than to build it! Finished PCs are packaged and shipped immediately to individual customers or retail outlets that sell its products. Dell distributes its products to customers using standard carriers such as United Parcel Service (UPS) and Federal Express (FedEx). These outsourcing arrangements provide quality service as well as tracking capability during shipment. Because of direct shipment, Dell does not store its products in warehouses as do many other consumer goods manufacturers. Sustainability is a key part of Dell's supply chain. Technology Business Research ranked Dell No. 1 in its inaugural Corporate Sustainability Index Benchmark Report. The report measures the environmental initiatives of 40 companies in the computer hardware, software, professional services, and network and telecommunications sectors. Dell also led firms in the computing sector, and scored particularly well in renewable energy use, recycling, and its integration of a sustainability strategy in its business. Dell sources about 35 percent of its U.S. energy use from green power and approximately 20 percent globally. One of its packaging practices is to use bamboo cushions that are biodegradable, nontoxic, and made of compost. "The whole process of re-thinking our packaging began back in January 2009," Mr. Campbell, senior manager of packaging, said. "We wanted to break the paradigm for polyethylene and polystyrene packaging, and we knew we didn't want something paperbased. So, we took a look at bamboo." Bamboo is a member of the grass family and grows very fast. It's strong, promotes healthy soil, has a deep root system to prevent land erosion, is widely available especially in China, and it meets high standards of sustainability. Coordinating Dell's supply chain management system is a comprehensive information technology (IT) infrastructure (using Dell PowerEdge servers, of course!) that uses Oracle database software. The Dell SCM system must handle an enormous number of transactions and pieces of information, and includes multiple core subsystems necessary to keep operations running smoothly: • Configuration management: The configuration management component manages over 1 million Dell part numbers per year across approximately 200 product families, and over 2 million bills of materials (BOMs) per year. BOMs listing component part numbers are created for manufacturing facilities to build assemblies and subassemblies for Dell products. • Procurement: The procurement component manages nearly 1.8 million purchase order lines per year from more than 5,000 suppliers worldwide. To streamline the procurement process, Dell uses an automated application that includes workflow approvals and vendor communication and enables services such as defective part replacement. • Cost management: The cost component runs mostly in batch mode to calculate the costs to Dell for all BOMs. These batch jobs run weekly, monthly, and quarterly, with each job aggregating total material costs. • Inventory: The inventory component manages more than 3 million inventory movements daily from stockrooms to factory floors across all Dell sites, along with the corresponding 3 million messages transmitted to different systems for reporting, analysis, and factory scheduling. Accounts payable: The accounts payable component handles approximately 15,000 items per day, including payments to Dell suppliers, invoices, and receipts. Vendor information • includes vendor ID number, location, negotiated terms, and contact information.

Why is there so much emphasis on quality today?

It helps to review a bit of history. During the Industrial Revolution, the use of interchangeable parts and the separation of work into small tasks necessitated careful control of quality, leading to the dependence on inspection to identify and remove defects and reducing the role of the workers themselves in responsibility for quality. After World War II, two U.S. consultants, Dr. Joseph Juran and Dr. W. Edwards Deming, introduced statistical quality control techniques to the Japanese to aid them in their rebuilding efforts. While presenting to a group of Japanese industrialists (collectively representing about 80 percent of the nation's capital) in 1950, Deming emphasized the importance of consumers and suppliers, the interdependency of organizational processes, the usefulness of consumer research, and the necessity of continuous improvement of all elements of the production system. Improvements in Japanese quality were slow and steady; some 20 years passed before the quality of Japanese products exceeded that of Western manufacturers. By the 1970s, primarily due to the higher quality levels of their products, Japanese companies had made significant penetration into Western markets. Most major U.S. companies answered the wake-up call by instituting extensive quality improvement campaigns, focused not only on conformance but also on improving design quality. In recent years, . a new interest in quality has emerged in corporate boardrooms under the concept of Six Sigma, a customer-focused and results-oriented approach to business improvement.

The 5Ss are derived from

Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain).

Other Quality Improvement Strategies

Kaizen Poka-Yoke (Mistake-Proofing)

the process of delaying product customization until the product is closer to the customer at the end of the supply chain.

Postponement

15-6 Explain the categories of cost-of-quality measurement.

Quality costs can be organized into four major categories: 1. prevention costs, 2. appraisal costs, 3. internal failure costs, and 4. external failure costs. By collecting and analyzing these costs (categories of cost-of-quality measurement), managers can identify the most important opportunities for improvement.

An established instrument for measuring customer perceptions of service quality is

SERVQUAL.

Exhibit 17.3 summarizes key characteristics and best practices for JIT systems.

See book

To gain a better understanding of value chains in a global context, we present a case study of Rocky Brands, Inc. next. A Global Value Chain: Rocky Brands, Inc.

Rocky Brands, Inc. (www.rockyboots.com ) headquartered in Nelsonville, Ohio, manufactures rugged leather work boots and shoes. Timberland, Wolverine, and Rocky are popular brand names for this shoe market segment. Rocky began making boots in 1932 as the William Brooks Shoe Company. In the 1960s, Rocky boots and shoes were 100 percent "Made in America." In 1960, more than 95 percent of all shoes sold in America were made in America. After 70 years in Nelsonville, the main factory closed in 2002. At that time, local labor costs were about $11 per hour without benefits, whereas in Puerto Rico, the hourly rate was $6; in the Dominican Republic, $1.25; and in China, 40 cents. The unemployed U.S. factory workers had a hard time finding other jobs. Some ended up as greeters at retail stores, collecting scrap metal, doing lawn work, and other odd jobs. The Union of Needle Trades, Industrial, and Textile Employees, Local 146, closed its doors. "Company medical insurance ran out in February 2003. Since 1972, the U.S. Department of Labor reports, 235,000 U.S. shoe jobs have been lost. It is very difficult for these displaced employees to retrain themselves in today's job market. Today, Rocky Brands, Inc. headquarters remains in Nelsonville along with a warehouse, but all manufacturing is now done overseas at locations such as Moca, Puerto Rico, and La Vega, Dominican Republic. The company made the move to offshore manufacturing much later than its competitors, Wolverine, Dexter, and Timberland, which moved their factories offshore 20 to 30 years ago. However, Rocky Brands, Inc. has successfully transitioned to a global operation. Rocky's global value chain is shown in Exhibit 2.8. A pair of premium Rocky work, hunting, or western boots may reflect components and labor from as many as five countries before landing on a store shelf. The principal characteristics of this global value chain are described as follows: 1. Leather is produced in Australia and then shipped to the Dominican Republic. 2. Outsoles are purchased in China and shipped to Puerto Rico. 3. Gore-Tex fabric waterproofing materials are made in the United States. 4. Shoe uppers are cut and stitched in the Dominican Republic, and then shipped to Puerto Rico. 5. Final shoe assembly is done at the Puerto Rico factory. 6. The finished boots are packed and shipped to the warehouse in Nelsonville, Ohio. Customer orders are filled and shipped to individual stores and contract customers from Nelsonville. The challenges continue for Rocky Brands, Inc., which must compete against larger competitors. Rocky profit margins are only about 2 percent on sales of over $100 million, whereas Timberland sales top $1 billion with a 9 percent profit margin. Meanwhile, the price of boots continues to decline from roughly $95 a pair to $85 and is heading toward $75. The grandson of the founder of Rocky Brands, Inc. said, "We've got to get there, or we're not going to be able to compete."10 Exhibit 2.8 Rocky Brands, Inc. Value Chain © Cengage Learning 2013 An organization and government's response to a disaster is only as good as its value chain operations and logistic (supply chain) capability.

9-6 Other Issues in Supply Chain Management

Selecting Transportation Services Supplier Evaluation Technology Inventory Management

Supplier Evaluation

Supplier management is an important support process in managing the entire supply chain. Many companies segment suppliers into categories based on their importance to the business and manage them accordingly. Today, suppliers are located in all parts of the world. For example, at Corning, Level 1 suppliers, who provide raw materials, cases, and hardware, are deemed critical to business success and are managed by teams that include representatives from engineering, materials control, purchasing, and the supplier company. Level 2 suppliers provide specialty materials, equipment, and services and are managed by internal customers. Level 3 Managing a supply chain also requires numerous operational decisions, such as selecting transportation services, evaluating suppliers, managing inventory, and other issues. suppliers provide commodity items and are centrally managed by purchasing.15 Measurement also plays an important role in supplier management. Texas Instruments measures suppliers' quality performance by parts per million defective, percentage of on-time deliveries, and cost of ownership.

9-5c The Center-of-Gravity Method

Supply chain design and location decisions are quite difficult to analyze and make. Many types of quantitative models and approaches, ranging from simple to complex, can be used to facilitate these decisions. We introduce a simple quantitative approach; however, in practice, more sophisticated models are generally used. The center-of-gravity method determines the x and y coordinates (location) for a single facility. Although it does not explicitly address customer service objectives, it can be used to assist managers in balancing cost and service objectives. The center-of-gravity method takes into account the locations of the facility and markets, demand, and transportation costs in arriving at the best location for a single facility. It would seem reasonable to find some "central" location between the goods-producing or service-providing facility and customers at which to locate the new facility. But distance alone should not be the principal criterion, as the demand (volume, transactions, and so on) from one location to another also affects the costs. To incorporate distance and demand, the center of gravity is defined as the location that minimizes the weighted distance between the facility and its supply and demand points. The first step in the procedure is to place the locations of existing supply and demand points on a coordinate system. The origin of the coordinate system and scale used are arbitrary, as long as the relative distances are correctly represented. Placing a grid over an ordinary map is one way to do that. The center of gravity is determined by Equations 9.1 and 9.2, and can easily be implemented on a spreadsheet. Cx = ΣXiWi/ΣWi [9.1] Cy = ΣYiWi/ΣWi [9.2] where Cx = x coordinate of the center of gravity Cy = y coordinate of the center of gravity Xi = x coordinate of location i Yi = y coordinate of location i Wi = volume of goods or services moved to or from location i The center-of-gravity method is often used to locate service facilities. For example, in locating a waste disposal facility, the location coordinates can be weighted by the average amount of waste generated from residential neighborhoods and industrial sites. Similarly, to locate a library, fire station, hospital, or post office, the population densities will define the appropriate weights in the model. Solved Problem Exhibit 9.7 Excel Center of Gravity Template Taylor Paper Products is a producer of paper stock used in newspapers and magazines. Taylor's demand is relatively constant and thus can be forecast rather accurately. The company's two factories are located in Hamilton, Ohio, and Kingsport, Tennessee. The company distributes paper stock to four major markets: Chicago, Pittsburgh, New York, and Atlanta. The board of directors has authorized the construction of an intermediate warehouse to service those markets. Coordinates for the factories and markets are shown in Exhibit 9.6. For example, we see that location 1, Hamilton, is at the coordinate (58, 96); therefore, X1 = 58 and Y1 = 96. Hamilton and Kingsport produce 400 and 300 tons per month, respectively. Demand at Chicago, Pittsburgh, New York, and Atlanta is 200, 100, 300, and 100 tons per month, respectively. With that information, using Equations 9.1 and 9.2, the center of gravity coordinates are computed as follows: Exhibit 9.7 shows the Excel Center of Gravity template, which can be used to find the best location. By overlaying a map on the chart, we see that the location is near the border of southern Ohio and West Virginia. Managers now can search that area for an appropriate site.

17-2 Describe the basic lean tools and approaches.

The 5Ss Visual Signaling Systems SMED BAtching Quality at the Srouce Total Productive Maintenance

Unlike Deming, however, Juran Juran's prescriptions focus on three major quality processes, called

The Quality Trilogy: (1) quality planning —the process of preparing to meet quality goals; (2) quality control —the process of meeting quality goals during operations; and (3) quality improvement —the process of breaking through to unprecedented levels of performance.

17-4a Timken Company

The Timken Company (www.timken.com ) is a leading global manufacturer of highly engineered bearings and alloy steels and related products and services for three major markets—industrial, automotive, and steel. Timken employs about 18,000 employees in over 50 factories and more than 100 sales, design, and distribution centers located throughout the world. Timken places increasing emphasis on Pre-and postproduction services, such as integrated engineering solutions to customer requirements. Like most manufacturers, Timken faced intense, survival-threatening, global competition, and like many others, it placed itself on the leading edge of the U.S. industrial revival. In 1989, the company launched "Vision 2000," a program of lean production initiatives that developed throughout the 1990s. A key element was increased productivity through lean manufacturing operating principles and technologies, some of which we highlight next. Eliminate Waste Timken's automotive business uses a "Boot Camp" in which a certain factory identifies several improvement opportunities, and Timken employees and managers from other sites then try to solve these specific problems at the host factory. The problems often focus on removing non-value-added steps from processes, reducing process and equipment variation, and eliminating waste. The boot camp approach allows "fresh eyes" to evaluate improvement opportunities and present solutions to host plant management. Increase Speed and Response Timken has focused on improving its product development process—a nonmanufacturing, informationintensive process—with the objective to radically reduce the total cycle time for new product development with fewer errors and to be more responsive to customer requests, competitor capabilities, and marketplace changes. Timken's objective of an integrated supply chain also focuses on agility to better meet customer wants and needs. Timken exploited computer-aided design and computer-aided manufacturing (CAD/CAM) to better meet customer needs and improve design for manufacturability. It developed flexible manufacturing systems to facilitate rapid, cost-effective changeover from one product to another, combining the advantages of batch and mass production. Lean manufacturing's most distinguishing characteristic at Timken, however, was the authority and responsibility it gave to people on the shop floor. Initiatives aimed at empowering shop floor employees included more open communication, enhanced training, widespread adoption of a team approach to problem solving and decision making, and changes in measures of performance and rewards. Improve Quality Total quality and continuous improvement have long been areas of focus for Timken. Through programs like Breakthrough and Accelerated Continuous Improvement, thousands of improvement ideas have been implemented, saving millions of dollars. Quality standards are determined for all manufacturing processes, and worldwide quality audits make sure that these standards are being met. Each plant is certified to ISO 9000 or other quality certifications. Timken has applied Six Sigma tools to minimize process variation. One initiative was to improve machine operator efficiency and reduce variability. Workstation processes were standardized and machine operator walking and movement time were eliminated or reduced. The result was improved quality and reduced scrap. Reduce Cost Timken redefined its mission statement in 1993 to be "the best performing manufacturing company in the world as seen through the eyes of our customers and shareholders." Timken factories, suppliers, and customers share information using the Internet. Purchasing, order fulfillment, manufacturing strategy implementation, Lean Six Sigma, and logistics have been brought together to create an "integrated supply chain model." The purpose of this focus is to reduce asset intensity, improve customer service and systems support, respond faster to customer needs, and better manage inventory levels. In the late 1990s, Timken decided to integrate its lean manufacturing practices and Six Sigma initiatives into one unified program, Lean Six Sigma. The objective of Timken's Lean Six Sigma program is "to identify and deliver value to our customers and shareholders by improving the flow of product and information through waste elimination and variation reduction." All manufacturing processes are flowcharted and the DMAIC problem-solving framework is used to generate process improvements. The automotive business achieved a net documented savings of $7 million from Lean Six Sigma projects in one year alone.

Community Location Decision

The community location decision involves selecting a specific city or community in which to locate. In addition to the factors cited previously, a company would consider managers' preferences, community services and taxes (as well as tax incentives), available transportation systems, banking services, and environmental impacts. Mercedes-Benz settled on Vance, Alabama, after considering sites in 30 different states. Alabama pledged $250 million in tax abatements and other incentives, and the local business community came up with $11 million. The community also submitted a plan for how it would help the families of German workers adjust to life in that community.

Kaizen

The concept of continuous improvement advocated by Deming was embraced by Japanese organizations, leading to an approach known as kaizen.

15-8 Explain the concepts of kaizen and poka-yoke.

The concept of continuous improvement is known as kaizen. In the kaizen philosophy, improvement in all areas of business—cost, meeting delivery schedules, employee safety and skill development, supplier relations, new product development, productivity—serve to enhance the quality of the firm. Human beings tend to make mistakes inadvertently. Typical process-related mistakes include omitted processing steps, processing errors, setup or changeover errors, missing information or parts, not handling service upsets properly, wrrong information or parts, and adjustment errors. Poka-yoke is designed to prevent such errors from occurring.

SERVQUAL

The initial instrument identified 10 dimensions of service quality performance:

process capability index.

The relationship between the natural variation and specifications is often quantified by a measure known as the process capability index.

The customer's cumulative judgment of the perceived benefits leads to either satisfaction or dissatisfaction. One of the simplest functional forms of value is:

Value = Perceived benefits/ price (cost) to the customer

indicators for operating activities that are placed in plain sight of all employees so that everyone can quickly and easily understand the status and performance of the work system.

Visual controls

Understanding the integration of goods and services and customer benefit packages is fundamental to how managers view their business, strategy, and value chains. Some important questions that operations managers must consider are:

What do customers buy from us? Do all value chains create and deliver services (sometimes through physical goods)? How does one value chain compete against another? The answers aren't easy, but they can make the difference in creating true customer value and a sustainable competitive advantage for the firm.

17-2a The 5Ss

Workers cannot be efficient if their workplaces are messy and disorganized. Efficient manufacturing plants are clean and well organized. Firms use the "5S" principles to create this work environment. The5Ss are derived from Japanese terms: (1) seiri (sort), (2) seiton (set in order), (3) seiso (shine), (4) seiketsu (standardize), and (5) shitsuke (sustain). 1. Sort refers to ensuring that each item in a workplace is in its proper place or identified as unnecessary and removed. 2. Set in order means to arrange materials and equipment so that they are easy to find and use. 3. Shine refers to a clean work area. Not only is this important for safety, but as a work area is cleaned, maintenance problems such as oil leaks can be identified before they cause problems. 4. Standardize means to formalize procedures and practices to create consistency and ensure that all steps are performed correctly. 5. Finally, sustain means to keep the process going through training, communication, and organizational structures.

six Sigma is

a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service processes by focusing on outputs that are critical to customers, resulting in a clear financial return for the organization.

A process capability study is

a carefully planned study designed to yield specific information about the performance of a process under specified operating conditions.

processes should move to other countries. For example,

a company might move a soda-bottling factory from the United States to India. The company benefits from lower wages, avoiding country trade tariffs, and access to local markets and customers. However, such a decision does not compromise the company's product development or other proprietary activities. At the other extreme, a high-tech company might establish a facility in China that develops, engineers, and manufactures new products. Such a decision might leave it vulnerable to protecting trade secrets.

viewing the supply chain from "right to left" and transferring demand to upstream processes is sometimes referred to as

a demand chain or pull system.

A JIT system can produce

a steady rate of output to meet the sales rate in small, consistent batch sizes to level loads and stabilize the operating system. This dramatically reduces the inventory required between stages of the production process, thus greatly reducing costs and physical capacity requirements (see the box on Conmed, Inc.).

The decision to offshore or outsource involves

a variety of economic and noneconomic issues.

Backward integration refers to

acquiring capabilities toward suppliers,

Value chains involve

all major functions in an organization. This includes not only operations, but also purchasing, marketing and sales, human resource management, finance and accounting, information systems and technology, distribution, and service and support.

The ISO 9000:2000 standards are intended to apply to

all types of businesses, including electronics and chemicals, and to services such as health care, banking, and transportation. In some foreign markets, companies will not buy from suppliers who are not certified to the standards.

Location decisions in supply and value chains are based on both economic and noneconomic factors. For example,

although the Gap, Banana Republic, and Old Navy are part of the same corporation, each firm locates its factories differently. The Gap makes its goods in Mexico to provide more agility in supplying the North American market; Old Navy sources in China to keep costs down; and Banana Republic has facilities in Italy in order to be close to fashion innovations. Exhibit 9.5 is a list of some important location factors for site selection. Economic factors include facility costs, such as construction, utilities, insurance, taxes, depreciation, and maintenance; operating costs, including fuel, direct labor, and administrative personnel; and transportation costs associated with moving goods and services from their origins to the final destinations or the opportunity cost of customers coming to the facility.

For complex value chains that incorporate numerous suppliers, facilities, and outsourced processes, firms need

an approach to coordinate and manage many things among all the players in the value chain: 1. information, 2. physical goods, and 3. services

The decision to purchase a good or service or a customer benefit package is based on

an assessment by the customer of the perceived benefits in relation to its price.

The creation of customer value depends on

an effective system of linked facilities and processes and the ability to manage them effectively.

External failure costs

are incurred after poor-quality goods or services reach the customer.

Companies must decide whether to integrate

backward (acquiring suppliers) or forward (acquiring distributors), or both.

Supply chain managers use numerous metrics to evaluate performance and identify improvements to the design and operation of their supply chains. These basic metrics typically

balance customer requirements as well as internal supply chain efficiencies and fall into several categories, as summarized in Exhibit 9.4.

Location decisions in supply and value chains are based on

both economic and noneconomic factors.

The Deming philosophy on Quality focuses on

bringing about improvements in product and service quality by reducing variability in goods and services design and associated processes.

A value chain is

broader in scope than a supply chain and is easier to apply to service-providing organizations as well as to goods-producing firms. We will focus on supply chains in Chapter 9.

The consequences of a lack of effective quality control systems and procedures

can be serious and potentially cause large financial losses or affect a company's reputation.

(SERVQUAL) Empathy is

caring, individual attention the firm provides its customers.

Multinational enterprises operate

complex value chains that challenge operations managers.

The Deming cycle is

composed of four stages: 1) plan, 2) do, 3) study, and 4) act

Developing Control Charts: The average range and average mean are used to

compute upper and lower control limits (UCL and LCL) for the R-charts and X ̅-charts. Control limits are easily calculated using the following formulas: (See book) where the constants D3, D4, and A2 depend on the sample size (see Appendix B).

For goods-producing firms Value Chain integration requires

consolidating information systems among suppliers, factories, distributors, and customers; managing the supply chain and scheduling factories; and studying new ways to use technology.

high quality is vital to

consumer safety in global food supply chains.

The basic purpose of a supply chain is to

coordinate the flow of materials, services, and information among the elements of the supply chain to maximize customer value.

an out-of-control process needs

correction

Service Quality: external focus

customer expectations

Meeting the objectives of lean enterprise requires

disciplined approaches for designing and improving processes.

In service applications, we often use the term

errors per million opportunities—epmo—instead of dpmo.

At the time Juran proposed the Quality Trilgy,

few companies were engaging in any significant planning or improvement activities. Thus, Juran was promoting a major cultural shift in management thinking.

Understanding the integration of goods and services and customer benefit packages is

fundamental to how managers view their business, strategy, and value chains. Some important questions that operations managers must consider are: What do customers buy from us? Do all value chains create and deliver services (sometimes through physical goods)? How does one value chain compete against another? The answers aren't easy, but they can make the difference in creating true customer value and a sustainable competitive advantage for the firm.

The organization that outsources does not

have ownership of the outsourced process or function. Some large U.S. banks and airlines, for example, have outsourced their telephone call service centers to third-party suppliers within or outside the United States.

The Malcolm Baldrige Award Criteria described in Chapter 3 provide a comprehensive framework for building quality into organizational processes and practices.

http://vrle.go.galegroup.com/vrle/retrieve.do?showHelp=true&bheadName=&isETOC=true&inPS=true&prodId=VRL&userGroupName=42cc64aa819e3b35%3A-5e439276%3A145a8c23b99%3A5606&firstPage=true&resultListType=RESULT_LIST&searchType=BasicSearchForm&docId=GALE%7C97812850890031&contentSegment=9781285089003#N109B7

By collecting and analyzing the Cost-of-Quality Measurement costs, managers can

identify the most important opportunities for improvement.

Today's consumers demand

innovative products, high quality, quick response, impeccable service, and low prices; in short, they want value in every purchase or experience. One of the most important points that we can emphasize in this book is that the underlying purpose of every organization is to provide value to its customers and stakeholders.

Servifce Quality: service-delivery system performance criteria

internal focus

From the perspective of operations, quality management deals with

key issues relating to how goods and services are designed, created, and delivered to meet customer expectations.

Visual signaling systems are

known as andon, drawing from the Japanese term from which the concept first originated. For example, if a machine fails or a part is defective or manufactured incorrectly, a light might turn on or a buzzer might sound, indicating that immediate action should be taken. Many firms have cords that operators can pull that tell supervisors and other workers that a problem has occurred.

When many manufacturers began outsourcing to Asia in the early 1990s, they were focused strictly on

low labor cost. But outsourcing can create numerous problems. For instance, the logistics of shipping from Asia can be complex. Travel expenses for executives and other employees needed to teach or monitor operations can mount up. Quality is more difficult to control, as is enforcing intellectual property rights. When all these factors are considered, some argue that the total cost of production in the United States is actually cheaper. As a result, many firms are "reshoring"—bringing operations back to the United States.

Reverse logistics refers to

managing the flow of finished goods, materials, or components that may be unusable or discarded through the supply chain from customers toward either suppliers, distributors, or manufacturers for the purpose of reuse, resale, or disposal. This reverse flow is opposite the normal operating supply chain where the raw materials and parts are assembled into finished goods and then delivered to wholesalers, retailers, and ultimately customers. The forward supply chain normally operates independently of any reverse logistics activities, sometimes with different owners and players.

Six Sigma integrates

many quality tools and techniques that have been tested and validated over the years with a bottom-line orientation that has high appeal to senior managers.

Larger firms have more complex location decisions; they might have to position a large number of factories and distribution centers advantageously with respect to suppliers, retail outlets, and each other. Rarely are these decisions made simultaneously. Typically, factories are located with respect to suppliers and a fixed set of distribution centers, or distribution centers are located with respect to a fixed set of factories and markets. A firm might also choose to locate a facility in a new geographic region not only to provide cost or service efficiencies but also to create cultural ties between the firm and the local community.

no back

Clearly, a global value chain strategy places

numerous demands on operations as well as other functions and their employees, and requires effective planning and execution.

Responsiveness is often measured by

order fulfillment lead time or by perfect delivery fulfillment. Customers today expect rapid fulfillment of orders and having promised delivery dates met.

As inventory levels diminish,

orders are sent to the previous stage upstream in the process for replenishing stock. Orders are passed up the supply chain, fulfilled at each stage, and shipped to the next stage.

Delivery reliability is often measured by

perfect order fulfillment.

Single Minute Exchange of Dies (SMED),

pioneered by Toyota and other Japanese manufacturers, refers to quickly changing tooling and fixtures to reduce setup time and achieve higher flexibility and productivity.

The principal goal of a value (supply) chain is to

provide customers with accurate and quick response to their orders at the lowest possible cost. This requires a network of facilities that are located strategically in the supply chain.

Third-party logistics (3PL) providers

provide integrated services that might include packaging, warehousing, inventory management, and transportation.

Inventory refers to

raw materials, work-in-process, or finished goods that are maintained to support production or satisfy customer demand.

The purpose of a sustainable supply chain is to

reduce costs while helping the environment.

For products that are of high enough value, it is normally more cost-effective to

remanufacture or refurbish the product, and convert damaged inventory into saleable goods, thus recapturing value on products that would otherwise be lost in disposition. In addition, efficiencies associated with manufactured goods recovery can yield increases in customer loyalty and retention through an enhanced public and sustainable image, boost revenue, reduce operating costs, provide customers with replaceable parts typically at lower prices than totally new parts, and improve the new customer's uptime.

16-3c Constructing p-Charts

see book

The Seven QC Tools are designed to be

simple and visual so that workers at all levels can use them easily.

Specifications for physical goods are normally measured using

some physical property such as length, weight, temperature, or pressure. For example, the specification for the diameter of a drilled hole might be 0.50 ± 0.02 cm. The target is 0.50 cm, and the tolerance is ± 0.02 cm; that is, the size of the hole is permitted to vary between 0.48 and 0.52 cm.

For goods-producing firms Value Chain integration requires consolidating information systems among

suppliers, factories, distributors, and customers; managing the supply chain and scheduling factories; and studying new ways to use technology.

In Value Chain Integration, a focus solely on coordinating the physical flow of materials to ensure that the right parts are available at various stages of the supply chain, such as manufacturing and assembly plants, is commonly called

supply chain integration .

One of the properties of a normal distribution is

that 99.73 percent of the observations will fall within 3 standard deviations from the mean.

Cpk is

the "worst case" and provides an indication of whether both the lower and upper specifications can be met regardless of where the process is centered. This is the value that most managers pay attention to.

A framework for evaluating the quality of both goods and services and identifying where to focus design and improvement efforts is

the GAP model.

Fitness For Use

the ability of a good or service to meet customer needs.

The operational structure of a value chain is

the configuration of resources, such as • suppliers, • factories, • warehouses, • distributors, • technical support centers, • engineering design and sales offices, and • communication links.

The cost of quality refers specifically to

the costs associated with avoiding poor quality or those incurred as a result of poor quality.

tolerances are

the permissible variation.

Vertical integration refers to

the process of acquiring and consolidating elements of a value chain to achieve more control.

Outsourcing is

the process of having suppliers provide goods and services that were previously provided internally.

Many service organizations operate large numbers of similar facilities. Multisite management is

the process of managing geographically dispersed service providing facilities. For example, McDonald's has over 30,000 restaurants worldwide plus hundreds of food-processing factories and distribution centers. Federal Express has over 1 million pickup and delivery sites worldwide plus hundreds of sorting and distribution facilities. Some major banks have over 5,000 branch banks plus thousands of ATM locations.

Inventory turnover is

the ratio of the cost of goods sold divided by the average inventory value.

Appraisal costs are

those expended on ascertaining quality levels through measurement and analysis of data to detect and correct problems.

Appraisal costs are

those expended on ascertaining quality levels through measurement and analysis of data to detect and correct problems. They include: 1) test and inspection costs those associated with incoming materials, work-in-process, and finished goods, including equipment costs and salaries; 2) instrument maintenance costs those associated with the calibration and repair of measuring instruments; and 3) process-measurement and process-control costs which involve the time spent by workers to gather and analyze quality measurements.

Prevention costs are

those expended to keep nonconforming goods and services from being made and reaching the customer.

Lean principles are not always

transferable to "front-office" services that involve high customer contact and service encounters. Different customers, service-encounter situations, and customer and employee behaviors cause the creation and delivery of the service to be much more variable and uncertain than producing a manufactured good in the confines of a factory. However, "back-office" service processes, such as hospital laboratory testing, check processing, and college application processing, are nearly identical to many manufacturing processes.

Six Sigma is facilitated through

use of basic and advanced quality improvement and control tools by individuals and teams whose members are trained to provide fact-based decision-making information.

Outsourcing is the opposite of

vertical integration in the sense that the organization is shedding (not acquiring) a part of its organization.

Distribution centers (DCs) are

warehouses that act as intermediaries between factories and customers, shipping directly to customers or to retail stores where products are made available to customers.

Vendor-managed inventory (VMI) is

where the vendor (a consumer goods manufacturer, for example) monitors and manages inventory for the customer (a grocery store, for example).

One of the most important strategic decisions a firm can make about its value chain is

whether to vertically integrate or outsource key business processes and functions.

Managers face numerous alternatives in designing a supply chain. Examples:

• hub-and-spoke" system, • point-to-point basis. • complex networks of distribution centers, • ship directly to customers.

Juran's definition of quality

"fitness for use."

A green sustainable supply chain can be defined as

"the process of using environmentally friendly inputs and transforming these inputs through change agents—whose by-products can improve or be recycled within the existing environment."

(PDSA). PDSA guides teams to

(AKA the Deming Cycle) develop an improvement plan, try it out, examine the results, and institute changes that lead to improved results, and then repeat the process all over again.

The results speak for themselves. For example, Baxter Healthcare Corporation

, a manufacturer of medical products, implemented sustainability tools that helped the company double in size while keeping total waste generation close to 1996 levels. One application expects to save 170,000 gallons of water per day. Lockheed Martin Corporation, a defense contractor, applied OM tools to its chemical and waste-management activities, reducing chemical inventories and eliminating the chemical warehouse and obsolescence of chemicals in inventory. The 3M Company reduced volatile air emissions by 25 percent and waste by 20 percent, and improved energy efficiency by 20 percent. 3M has been using "Pollution Prevention Pays" projects since 1975 to prevent pollution in its products and manufacturing processes rather than after the products are created.

Many different types of control charts exist

. All are similar in structure, but the specific formulas used to compute control limits for them differ. Moreover, different types of charts are used for different types of metrics.

In his early work in the United States, Deming preached his 14 Points. Although management practices today are vastly different than when Deming first began to preach his philosophy, the 14 Points still convey important insights for operations managers as well as every other manager in an organization.

1) Create a Vision and Demonstrate Commitment 2) Learn the Philosophy 3) Understand Inspection 4) Stop Making Decisions Purely on the Basis of Cost 5) Improve Constantly and Forever 6) Institute Training 7) Institute Leadership 8) Drive Out Fear 9) Optimize the Efforts of Teams 10) Eliminate Exhortations 11) Eliminate Numerical Quotas 12) Remove Barriers to Pride in Work 13) Encourage Education and Self-Improvement 14) Take Action

The recognized benchmark for Six Sigma implementation is General Electric. GE's Six Sigma problem-solving approach (DMAIC) employs five phases:

1) Define (D) o Identify customers and their priorities. o Identify a project suitable for Six Sigma efforts based on business objectives as well as customer needs and feedback. o Identify CTQs (critical-to-quality characteristics) that the customer considers to have the most impact on quality. 2) Measure (M) o Determine how to measure the process and how it is performing. o Identify the key internal processes that influence CTQs and measure the defects currently generated relative to those processes. 3) Analyze (A) o Determine the most likely causes of defects. o Understand why defects are generated by identifying the key variables that are most likely to create process variation. 4) Improve (I) o Identify means to remove the causes of the defects. o Confirm the key variables and quantify their effects on the CTQs. o Identify the maximum acceptable ranges of the key variables and a system for measuring deviations of the variables. o Modify the process to stay within the acceptable range. 5) Control (C) o Determine how to maintain the improvements. o Put tools in place to ensure that the key variables remain within the maximum acceptable ranges under the modified process.

The Toyota Motor Company classified waste into seven major categories:

1) Overproduction: for example, making a batch of 100 when there are orders for only 50 in order to avoid an expensive setup, or making a batch of 52 instead of 50 in case there are rejects. Overproduction ties up production facilities, and the resulting excess inventory simply sits idle. 2) Waiting time: for instance, allowing queues to build up between operations, resulting in longer lead times and more work-in-process. 3) Transportation: the time and effort spent in moving products around the factory as a result of poor layout. 4) Processing: the traditional notion of waste, as exemplified by scrap that often results from poor product or process design. 5) Inventory: waste associated with the expense of idle stock and extra storage and handling requirements needed to maintain it. 6) Motion: as a result of inefficient workplace design and location of tools and materials. 7) Production defects: the result of not performing work correctly the first time.

Many individuals have made substantial contributions to quality management thought and applications. However, three people are regarded as "management gurus" in the quality revolution:

1) W. Edwards Deming, 2) Joseph M. Juran, and 3) Philip B. Crosby

Quality is more than simply ensuring that goods and services consistently conform to specifications. Achieving high-quality goods and services depends on the commitment and involvement of everyone in the entire value chain. The principles of total quality are simple:

1) a focus on customers and stakeholders, 2) a process focus supported by continuous improvement and learning, and 3) participation and teamwork by everyone in the organization.

All Six Sigma projects have three key characteristics:

1) a problem to be solved, 2) a process in which the problem exists, and 3) one or more measures that quantify the gap to be closed and can be used to monitor progress.

In applying Six Sigma to services, there are four key measures of the performance:

1) accuracy, as measured by correct financial figures, completeness of information, or freedom from data errors; 2) cycle time, which is a measure of how long it takes to do something, such as pay an invoice; 3) cost, that is, the internal cost of process activities (in many cases, cost is largely determined by the accuracy and/or cycle time of the process—the longer it takes, and the more mistakes that have to be fixed, the higher the cost); and 4) customer satisfaction, which is typically the primary measure of success.

External failure costs are incurred after poor-quality goods or services reach the customer. They include:

1) costs due to customer complaints and returns including • rework on returned items, • cancelled orders, • discount coupons, and • freight premiums; 2) goods and services recall costs and warranty and service guarantee claims including • the cost of repair or replacement as well as associated administrative costs; and 3) product-liability costs resulting from legal actions and settlements.

Lean operating systems have four basic principles:

1) elimination of waste, 2) increased speed and response, 3) improved quality, and 4) reduced cost

The core philosophy of Six Sigma is based on some key concepts:

1) emphasizing dpmo or epmo as a standard metric that can be applied to all parts of an organization: manufacturing, engineering, administrative, software, and so on; 2) providing extensive training followed by project team deployment to improve profitability, reduce non-value-added activities, and achieve cycle time reduction; 3) focusing on corporate sponsors responsible for supporting team activities to help overcome resistance to change, obtain resources, and focus the teams on overall strategic objectives; 4) creating highly qualified process improvement experts ("green belts," "black belts," and "master black belts") who can apply improvement tools and lead teams; 5) ensuring that appropriate metrics are identified early in the process and that they focus on business results; and 6) setting stretch objectives for improvement.

The "Seven QC Tools"

1) flowcharts, 2) checksheets, 3) histograms, 4) Pareto diagrams, 5) cause-and-effect diagrams, 6) scatter diagrams, and 7) control charts

To increase value, an organization must

1) increase perceived benefits while holding price or cost constant; 2) increase perceived benefits while reducing price or cost; or 3) decrease price or cost while holding perceived benefits constant. In addition, proportional increases or decreases in perceived benefits as well as price result in no net change in value. Management must determine how to maximize value by designing processes and systems that create and deliver the appropriate goods and services customers want to use, pay for, and experience.

Quality costs can be organized into four major categories:

1) prevention costs, 2) appraisal costs, 3) internal failure costs, and 4) external failure costs.

Prevention costs are those expended to keep nonconforming goods and services from being made and reaching the customer. They include:

1) quality planning costs such as salaries of individuals associated with quality planning and problem solving teams, the development of new procedures, new equipment design, and reliability studies; 2) process-control costs which include costs spent on analyzing processes and implementing process control plans; 3) information-systems costs which are expended to develop data requirements and measurements; and 4) training and general management costs which include internal and external training programs, clerical staff expenses, and miscellaneous supplies.

10 Dimensions of SERVQUAL (Service Quality Performance)

1) reliability, 2) responsiveness, 3) competence, 4) access, 5) courtesy, 6) communication, 7) credibility, 8) security, 9) understanding/knowing the customer, and 10) tangibles.

Internal failure costs are costs incurred as a result of unsatisfactory quality that is found before the delivery of a good or service to the customer. Examples include:

1) scrap and rework costs including material, labor, and overhead; 2) costs of corrective action arising from time spent determining the causes of failure and correcting problems; 3) downgrading costs such as revenue lost by selling a good or service at a lower price because it does not meet specifications; and 4) process failures such as unplanned equipment downtime or service upsets or unplanned equipment repair.

SERQUAL dimensoins

1) tangibles, 2) reliability, 3) responsiveness, 4) assurance, and 5) empathy.

Appraisal costs are those expended on ascertaining quality levels through measurement and analysis of data to detect and correct problems. They include:

1) test and inspection costs those associated with incoming materials, work-in-process, and finished goods, including equipment costs and salaries; 2) instrument maintenance costs those associated with the calibration and repair of measuring instruments; and 3) process-measurement and process-control costs which involve the time spent by workers to gather and analyze quality measurements.

Some global trade experts recommend keeping some primary processes or key parts of a manufacturing process out of foreign lands to protect the firm's core competencies. We can pose four possible scenarios.

1. In the first scenario, all key processes remain in the home country, even though the firm sells its products overseas 2. The second scenario represents a low degree of offshoring in which some noncritical support processes are moved overseas. 3. A third scenario is for a company to offshore many of its primary as well as support processes while keeping its management processes consolidated at the corporate headquarters, 4. The Fourth Scenario, true global multinational firms locate all of their key processes across the globe for more effective coordination and local management. The global alignments, of course, may change over time.

Organizations use several tools and approaches to create a lean organization. We describe some of these here. Lean Tools and Approaches:

1. 5Ss 2. Visual Controls 3. Single Minute Exchange of Dies (SMED) 4. Small Batch and Single-Piece Flow 5. Quality and Continuous Improvement 6. Total Productive Maintenance

Any control system has three components:

1. a performance standard or goal, 2. a means of measuring actual performance, and 3. comparison of actual performance with the standard to form the basis for corrective action.

A process is in control when the control chart has the following characteristics:

1. No points are outside control limits. 2. The number of points above and below the center line is about the same. 3. The points seem to fall randomly above and below the center line. 4. Most points, but not all, are near the center line, and only a few are close to the control limits.

SCOR Model: Plan

1. Plan—Developing a strategy that balances resources with requirements and establishes and communicates plans for the entire supply chain. This includes management policies and aligning the supply chain plan with financial plans.

SCOR Model:

1. Plan—Developing a strategy that balances resources with requirements and establishes and communicates plans for the entire supply chain. This includes management policies and aligning the supply chain plan with financial plans. 2. Source—Procuring goods and services to meet planned or actual demand. This includes identifying and selecting suppliers, scheduling deliveries, authorizing payments, and managing inventory. 3. Make—Transforming goods and services to a finished state to meet demand. This includes production scheduling, managing work-in-process, manufacturing, testing, packaging, and product release. 4. Deliver—Managing orders, transportation, and distribution to provide the goods and services. This entails all order management activities from processing customer orders to routing shipments, managing goods at distribution centers, and invoicing the customer. 5. Return—Processing customer returns; providing maintenance, repair, and overhaul; and dealing with excess goods. This includes return authorization, receiving, verification, disposition, and replacement or credit.

The 5Ss

1. Sort 2. Set 3. Shine 4. Standardize 5. Sustain

The United States has experienced three waves of outsourcing:

1. The first wave involved the exodus of goods producing jobs from the United States in many industries several decades ago. Companies relied on foreign factories for the production of computer components, electronics, and many other goods. Gibson Guitars, for example, produces its Epiphone line in Korea. 2. The second wave involved simple service work, such as standard credit card processing, billing, keying information into computers, and writing simple software programs. Accenture, for example, has information technology and bookkeeping operations in Costa Rica. 3. The third, and current wave, involves skilled knowledge work, such as engineering design, graphic artists, architectural plans, call center customer service representatives, and computer chip design. For example, Fluor Corporation of Aliso Viejo, California, uses engineers and drafts-people in the Philippines, Poland, and India to develop detailed blueprints and specs for industrial construction and improvement projects.

Components of control system

1. a performance standard or goal, 2. a means of measuring actual performance, and 3. comparison of actual performance with the standard to form the basis for corrective action.

Some issues that operations managers must confront in a global business environment include

1. how to design a value chain to meet the slower growth of industrialized countries and more rapid growth of emerging economies; 2. where to locate manufacturing and distribution facilities around the globe to capitalize on value chain efficiencies and improve customer value; 3. what performance metrics to use in making critical value chain decisions; and 4. how to decide if partnerships should be developed with competitors to share engineering, manufacturing, or distribution technology and knowledge.

For complex value chains that incorporate numerous suppliers, facilities, and outsourced processes, firms need an approach to coordinate and manage many things among all the players in the value chain:

1. information, 2. physical goods, and 3. services

Supply chains can be designed from two strategic perspectives

1. providing high efficiency and low cost or 2. providing agile response.

Organizations face numerous decisions in designing and configuring their value chains. Looking back at Exhibits 2.1 and 2.3, we see that these decisions must include

1. the number, type, and location of manufacturing plants, distribution centers, retail stores, repair facilities, and customer service or technical support centers; 2. the choice of technology and processes to make goods and deliver services; 3. the ways of managing information flow throughout the value chain; 4. the selection of suppliers and partners; and 5. the integration of all the pieces into an effective and efficient system.

Quality Management: Chapter Objectives

15-1 Explain the concepts and definitions of quality. 15-2 Describe the quality philosophies and principles of Deming, Juran, and Crosby. 15-3 Explain the GAP model and its importance. 15-4 Describe the concepts and philosophy of ISO 9000:2000. 15-5 Describe the philosophy and methods of Six Sigma. 15-6 Explain the categories of cost-of-quality measurement. 15-7 Describe how to apply the Seven QC Tools. 15-8 Explain the concepts of kaizen and poka-yoke.

16-3 Constructing Control Charts

16-3a ConstructingX ̅- and R-Charts 16-3b Interpreting Patterns in Control Charts 16-3c Constructing p-Charts 16-3d Constructing c-Charts

SCOR Model: Source

2. Source—Procuring goods and services to meet planned or actual demand. This includes identifying and selecting suppliers, scheduling deliveries, authorizing payments, and managing inventory.

SCOR Model: Make

3. Make—Transforming goods and services to a finished state to meet demand. This includes production scheduling, managing work-in-process, manufacturing, testing, packaging, and product release.

A useful approach to identify the root cause is called the

5-Why Technique. This approach forces one to redefine a problem statement as a chain of causes and effects to identify the source of the symptoms by asking why, ideally five times. In a classic example at Toyota, a machine failed because a fuse blew. Replacing the fuse would have been the obvious solution; however, this action would have addressed only the symptom of the real problem. Why did the fuse blow? Because the bearing did not have adequate lubrication. Why? Because the lubrication pump was not working properly. Why? Because the pump axle was worn. Why? Because sludge seeped into the pump axle, which was determined to be the root cause. Toyota attached a strainer to the lubricating pump to eliminate the sludge, thus correcting the problem of the machine failure.

We noted that a "six-sigma" process has a dpmo of 3.4. The sigma level can easily be calculated on an Excel spreadsheet using the cell formula:

= NORMSINV(1 − Number of Defects/Number of Opportunities) + 1.5 or equivalently, = NORMSINV(1 − dpmo/1,000,000) + 1.5 [15.3] The value of 1.5 in this formula stems from the mathematical calculation of six sigma. The developers of this concept allowed a process to shift by as much as 1.5 standard deviations from the mean, recognizing that it is not possible to control a process perfectly. Using the formula in Equation 15.3, we can translate any value of dpmo into a "sigma measure." For example, while a six-sigma process has a dpmo of 3.4, we can also state that a three-sigma process has a dpmo of 66,807, a four-sigma process has dpmo = 6,210, and a five-sigma process has dpmo = 233. You can see that moving from a three-to a four-sigma level requires about a 10-fold improvement, and moving from a five-to a six-sigma level is almost a 70-fold improvement. It isn't easy to reach six-sigma quality levels!

The 5Ss is part of

?????? need to look this up Ch17

Solar Thermal Panel:

A device that collects energy from the sun and converts it into heat for domestic water systems and/or space-heating systems.

Sustainable Architecture:

A general term that describes environmentally conscious design of structures such as roads, buildings, dams, and airports that minimizes the negative environmental impact of these structures by enhancing efficiency and moderation in the use of materials, energy, and development space.

Histograms

A histogram is a basic statistical tool that graphically shows the frequency or number of observations of a particular value or within a specified group. Histograms provide clues about the characteristics of the parent population from which a sample is taken. Patterns that would be difficult to see in an ordinary table of numbers become apparent. You are probably quite familiar with histograms from your statistics classes.

Run and Control Charts

A run chart is a line graph in which data are plotted over time. The vertical axis represents a measurement; the horizontal axis is the time scale. Run charts show the performance and the variation of a process or some quality or productivity indicator over time. They can be used to track such things as production volume, costs, and customer satisfaction indexes. Run charts summarize data in a graphical fashion that is easy to understand and interpret, identify process changes and trends over time, and show the effects of corrective actions. A control chart is simply a run chart to which two horizontal lines, called control limits, are added: the upper control limit (UCL) and lower control limit (LCL), as illustrated in Exhibit 15.3. Control limits are chosen statistically so that there is a high probability (generally greater than .99) that points will fall between these limits if the process is in control. Control limits make it easier to interpret patterns in a run chart and draw conclusions about the state of control. The next chapter addresses this topic in much more detail.

17-5a Operation of a JIT System

A simple generic JIT system with two process cycles—one for the customer and a second for the supply process—is shown in Exhibit 17.2. Conceptually, the customer can be an internal or external customer, and the customer-supply configuration in Exhibit 17.2 can be chained together to model a more complex sequence of production or assembly operations. In this process, the customer cycle withdraws what is needed at the time it is needed according to sales. The supply cycle creates the good to replenish only what has been withdrawn by the customer. The storage area is the interface and control point between the customer and supply cycles. Slips, called Kanban cards (Kanban is a Japanese word that means "visual record" or "card"), are circulated within the system to initiate withdrawal and production items through the production process.

Not all supply chains have each of the stages illustrated in Exhibit 9.1.

A simple supply chain might be one that supplies fresh fish at a Boston restaurant. Being close to the suppliers (fisherman), the restaurant might purchase fish directly from them daily and cut and fillet the fish directly at the restaurant. A slightly more complex supply chain for a restaurant in the Midwest might include processing and packaging by a seafood wholesaler and air transportation and delivery to the restaurant. For consumers who want to buy fish from a grocery store, the supply chain is more complex and would include wholesale delivery and storage by the retailer.

16-4a Controlling Six Sigma Processes

A small sample size is desirable to keep the cost associated with sampling low. On the other hand, large sample sizes provide greater degrees of statistical accuracy in estimating the true state of control. Large samples also allow smaller changes in process characteristics to be detected with higher probability. In practice, samples of about 5 have been found to work well in detecting process shifts of 2 standard deviations or larger. To detect smaller shifts in the process mean, larger sample sizes of 15 to 25 must be used. For attributes data, too small of a sample size can make a p-chart meaningless. Even though many guidelines such as "use at least 100 observations" have been suggested, the proper sample size should be determined statistically, particularly when the true portion of nonconformances is small. If p is small, n should be large enough to have a high probability of detecting at least one nonconformance. For example, statistical calculations can show that if p = .01, then the sample size must be at least 300 to have at least a 95 percent chance of finding at least one nonconformance. Managers must also consider the sampling frequency. Taking large samples on a frequent basis is desirable but clearly not economical. No hard-and-fast rules exist for the frequency of sampling. Samples should be close enough to provide an opportunity to detect changes in process characteristics as soon as possible and reduce the chances of producing a large amount of nonconforming output. However, they should not be so close that the cost of sampling outweighs the benefits that can be realized. This decision depends on the individual application and volume of output.

Photovoltaics:

A solar power technology that uses cells, panels, or arrays to convert light from the sun directly into electricity.

What does quality mean?

A study that asked managers of 86 firms in the eastern United States to define quality produced several dozen different responses, including 1. perfection, 2. consistency, 3. eliminating waste, 4. speed of delivery, 5. compliance with policies and procedures, 6. providing a good, usable product, 7. doing it right the first time, 8. delighting or pleasing customers, and 9. total customer service and satisfaction.

Checksheets

Checksheets are special types of data collection forms in which the results may be interpreted on the form directly without additional processing. For example, in the checksheet in Exhibit 15.4, one can easily identify the most frequent causes of defects.

Quality is more than simply ensuring that goods and services consistently conform to specifications.

Achieving high-quality goods and services depends on the commitment and involvement of everyone in the entire value chain. The principles of total quality are simple: 1) a focus on customers and stakeholders, 2) a process focus supported by continuous improvement and learning, and 3) participation and teamwork by everyone in the organization.

3As

Agility Adaptability Alignment Agility Agile supply chains respond to uncertainties in a rapid, flexible, cost-effective and reliable manner. Building agility requires strong supplier relationships, the right buffer inventory, appropriate capacity levels, product and process design with postponement, parts commonality, efficient logistics systems, backup plans for supply and logistics, and an information system that enables fast and accurate information on demand and supply conditions. These capabilities require tight integration of such functions as design and manufacturing, merchandising and operations, and procurement and logistics. Adaptability For any given product family, OEMs try to design the most efficient supply chain to serve their customers. That includes optimizing the location of suppliers, manufacturing contractors, distribution, logistics systems and retail channels. When demand or supply conditions change, OEMs must reexamine the supply chain strategy to ensure it's still appropriate. Options include adapting the supply base, relocating manufacturing, using different means of distribution or outsourcing services, offering new sales channels and modifying product designs. Alignment The weakest link in any supply chain defines the chain's ultimate performance. If one member of the supply chain focuses only on maximizing its own interests, and if those interests are not aligned with the objectives of the entire supply chain, then the overall chain's performance will be less than optimal. Smart companies have therefore devised relationships and contracts that align their partners' incentives with their own interests to maximize the chain's overall performance. It starts with sharing information and knowledge to form the foundation for a deep supply chain relationship. The second dimension is the alignment of identity — that is, the roles and responsibilities of the partners. Here, such issues as responsibility for replenishment, forecasting, order fulfillment and customer service need to be well-defined and, if need be, realigned. Creating capabilities in all three A's involves proper training and the right performance measurement system, business process design, product design, and incentive schemes and contracts with supply chain partners. Companies that work on all three simultaneously will achieve superior supply chain performance.

17-5b JIT in Service Organizations

Although JIT has had its biggest impact in manufacturing, many service organizations are increasingly applying it. At the Nashua Corporation, for example, a JIT-oriented study of administrative operations reduced order-cycle time from three days to one hour, office space requirements by 40 percent, and errors by 95 percent and increased productivity by 20 percent.9 One overnight packagedelivery service saw its inventory investment climb from $16 million to $34 million with conventional inventory management techniques.10 Implementing JIT reduced its inventory investment, but the company's major objective was to increase profits by providing a 99.9 percent level of service to its customers. Before JIT implementation, its service level—computed by dividing the number of items filled weekly by the number of items requested—was 79 percent. After JIT, the level was 99 percent, and the firm looked forward to meeting its goal. Baxter International is another service company that has experienced the benefits of a JIT system. However, lean principles can't be blindly implemented in services without considering their effects on customers, as Starbucks is discovering. Starbucks began to roll out "better way" initiatives—a series of process improvements using lean principles. Starbucks initiated a "lean team" that goes around the country with a Mr. Potato Head toy used in a lean training program for Starbuck managers. Managers learn how to assemble the toy in less than 45 seconds and apply the learnings to their store processes. However, customer service encounters may have suffered, as one customer wrote: "Customers come into Starbucks—at least they did—to experience something that could only happen without lean, friendly banter with the barista, sampling coffee or a pastry, etc. Lean is best suited to assembly lines and factories, not so for managing human interaction, which is never a repeatable routine."11

Environmental Accounting:

An approach to accounting that refers to the modification of standard accounting methods to incorporate the use or depletion of natural resources; sometimes referred to as "green accounting," "resource accounting," or "integrated economic and environmental accounting."

Inventory Management

An efficient distribution system can enable a company to operate with lower inventory levels, thus reducing costs, as well as providing high levels of service that create satisfied customers. Careful management of inventory is critical to supply chain time-based performance in order to respond effectively to customers.

Carbon Footprint:

An estimate of how much carbon dioxide an entity (e.g., a person, physical good, service, manufacturing facility, packaging, vehicle, office building) produces and releases into the atmosphere.

16-1 Describe quality control systems and key issues in manufacturing and service.

Any control system has three components: a performance standard or goal, a means of measuring actual performance, and comparison of actual performance with the standard to form the basis for corrective action. The importance of control is often explained by the 1:10:100 Rule: If a defect or service error is identified and corrected at the design stage, it might cost $1 to fix. If it is first detected during the production process, it might cost $10 to fix. However, if the defect is not discovered until it reaches the customer, it might cost $100 to correct. In manufacturing, control is generally applied at three key points in the supply chain: at the receiving stage from suppliers, during various production processes, and at the finishedgoods stage. One way to control quality in services is to prevent sources of errors and mistakes in the first place by using the poka-yoke approaches. Another way is to hire and train service providers in service management skills as part of a prevention-based approach to quality control.

Value Chains: An Input-Output Perspective

As shown in Exhibit 2.1, a value chain can be depicted as a "cradle-to-grave" input-output model of the operations function. The value and repair services, architectural and engineering design firms, and contractors, as well as manufacturers of materials and components. The inputs they provide might be physical goods such as automobile engines or microprocessors provided to an assembly plant; meat, fish, and vegetables provided to a restaurant; trained employees provided to organizations by universities and technical schools; or information such as market research or a medical diagnosis. Inputs are transformed into value-added goods and services through processes that are supported by such resources as equipment and facilities, labor, money, and information. Note that what is being transformed can be almost anything—for instance, people in a hospital, a physical good in an oil refinery, information in an e-publishing business, or a mixture of people, physical goods, and information.

Allen-Edmonds Shoe Corporation: Not Everyone Offshores

At a time when more than 98 percent of all shoes sold in the United States are made in other countries, Allen-Edmonds Shoe Corp. is a lonely holdout against offshoring. Moving to China could have saved the company as much as 60 percent. However, John Stollenwerk, chief executive, will not compromise on quality, and believes that Allen-Edmonds can make better shoes and serve customers faster in the United States. An experiment in producing one model in Portugal resulted in lining that wasn't quite right and stitching that wasn't as fine. Stollenwerk noted "We could take out a few stitches and you'd never notice it—and then we could take out a few more. Pretty soon you've cheapened the product, and you don't stand for what you're about."7 Instead, Allen-Edmonds invested more than $1 million to completely overhaul its manufacturing process into a leaner and more efficient system that could reduce the cost of each pair of shoes by 5 percent. One year after implementing its new production processes, productivity was up 30 percent, damages were down 14 percent, and order fulfillment neared 100 percent, enabling the company to serve customers better than ever.8

Kanaban System: Problem Solved

Babbitt Manufacturing uses a Kanban system for a component part. The daily demand is 800 brackets. Each container has a combined waiting and processing time of 0.34 days. The container size is 50 brackets and the safety factor (a) is 9 percent. a. How many Kanban card sets should be authorized? b. What is the maximum inventory of brackets in the system of brackets? c. What are the answers to (a) and (b) if waiting and processing time is reduced by 25 percent? d. If we assume one-half the containers are empty and one-half full at any given time, what is the average inventory in the system for the original problem? Solution a. Using Equation 17.1: Thus, six containers and six Kanban card sets are necessary to fulfill daily demand. b. The maximum authorized inventory is K × C = 6 × 50 = 300 brackets. c. K = d(p+w)(1+α)/C =800*.255*(1+0.09)/50 = 4.45 Thus, five containers and five Kanban card sets are necessary to fulfill daily demand. The maximum authorized inventory is now K × C = 5 × 50 = 250 brackets. d. The average inventory under this assumption is 300/2 = 150 brackets. Many variables in the JIT system determine whether this assumption is valid or not. For example, for a given combination of daily demand, processing and waiting times, and other process inefficiencies and uncertainties, it is possible for more or fewer containers to be empty (full).

Zero-Carbon Buildings:

Buildings that produce no emissions of carbon dioxide from any of their systems and appliances.

Biodegradable:

Capable of decomposing naturally within a relatively short period of time.

Basic Principle of Lean Operating System: Reduce Cost

Certainly, reducing cost is an important objective of lean enterprise. Anything that is done to reduce waste and improve quality often reduces cost at the same time. More efficient equipment, better preventive maintenance, and smaller inventories reduce costs in manufacturing firms. Simplifying processes, such as using customer labor via self-service in a fast-food restaurant, depositing a check using an automatic teller machine, and completing medical forms online before medical service, are ways for service businesses to become leaner and reduce costs.

• Common cause variation

Common cause variation is the result of complex interactions of variations in materials, tools, machines, information, workers, and the environment.

Sustainable Supply Chain Practices

Companies such as UPS and FedEx move a multitude of goods using trucks, airplanes, and trains. They use a lot of fuel, and these companies are challenged not only to save high energy costs, but to reduce their carbon footprint. Customers today are more sensitive to environmental impact and are demanding better stewardship from the companies they deal with. UPS, for example, has been using low-emission rail transport since 1966 and selects the lowest-carbon route for customer shipments. They also evaluate customers' supply chains for their environment impact and suggest improvements in transportation, inventory management, and shipping decisions. FedEx works with its suppliers to understand the environmental impacts of materials they use, and seeks to reduce those impacts. Both UPS and FedEx often work with customers to analyze and improve their supply chains to enhance efficiency and reduce their customers' environmental footprint. These companies also exploit business analytics to improve routing their vehicles to reduce fuel consumption, and have introduced hybrid and electric vehicles in their fleets.

Example: Conmed, Inc.: JIT and Lean Keep Jobs in the USA

Conmed, Inc. was evaluating moving its surgical device manufacturing operations from New York to China. Instead, it overhauled its operating systems using JIT and lean practices. Conmed designed a JIT system to build only as many products as customers need based on actual demand, rather than a three-to six-month forecast. It calculated that every 90 seconds, hospitals worldwide use of one of its disposable surgical devices for inserting and removing fluids around joints during arthroscopic surgery. So that is exactly how long it takes one new device to roll off the assembly line. "The goal is to link our operations as closely as possible to the ultimate buyer of the product," says David Johnson, vice-president of global operations. The 600-worker Utica, New York, factory is now organized in a compact U-shaped set of workstations instead of one long assembly line. As a result, extensive piles of inventory have been replaced by just a few JIT containers, freeing up capital for other uses and reducing the need for financing.

Developing/Using Control Charts

Control charts are quite simple to use; they were developed in the early 20th century for use by shop floor workers (without computers or calculators!). Essentially, we take samples of output from a process at periodic intervals and measure the quality characteristic we wish to control, do some calculations, plot the data on a chart, and interpret the results. The following is a summary of the steps required to develop and use control charts. Steps 1 through 4 focus on setting up an initial chart; in step 5, the charts are used for ongoing monitoring; and finally, in step 6, the data are used for process capability analysis. 1. Preparation a. Choose the metric to be monitored and controlled—for example, the diameter of a drilled hole, time to process an order, percentage of customer returns, or number of complaints/day. b. Determine the sample size (number of observations in each sample) and frequency of sampling (time between taking successive samples). We will discuss some practical issues related to these decisions in Section 4. c. Set up the control chart. This can be done on a sheet of paper or more efficiently on a computer using a spreadsheet or a commercial software package. 2. Data collection a. a. Record the data. b. b. Calculate relevant statistics: averages, ranges, proportions, and so on. c. c. Plot the statistics on the chart. These tasks may be done by hand or on a computer. 3. Determination of trial control limits a. a. Draw the center line (process average) on the chart. b. b. Compute the upper and lower control limits. Again, spreadsheets and computer software can automate these tasks. 4. Analysis and interpretation a. a. Investigate the chart for lack of control. b. b. Eliminate out-of-control points. c. c. Recompute control limits if necessary. 5. Use as a problem-solving tool d. a. Continue data collection and plotting. e. b. Identify out-of-control situations and take corrective action. 6. Determination of process capability using the control chart data

Carbon Offsets:

Credits earned for activities that help balance carbon dioxide (CO2) emissions, such as planting trees.

Performing a break even analysis on outsourcing decision

Define VC1 = Variable cost/unit if produced VC2 = Variable cost/unit (i.e., purchase price/unit) if outsourced FC = fixed costs associated with producing the part Q = Quantity produced (volume) Then Total cost of production = (VC1)Q + FC Total cost of outsourcing = (VC2)Q If we set these costs equal to each other, we obtain (VC2)Q = (VC1)Q + FC (VC2)Q − (VC1)Q = FC (VC2 − VC1)Q = FC The break-even quantity is found by solving for Q:

16-4 Describe practical issues in implementing SPC.

Designing control charts involves two key issues: 1. sample size, and 2. sampling frequency. A small sample size is desirable to keep the cost associated with sampling low. On the other hand, large sample sizes provide greater degrees of statistical accuracy in estimating the true state of control. Large samples also allow smaller changes in process characteristics to be detected with higher probability. In practice, samples of about 5 have been found to work well in detecting process shifts of 2 standard deviations or larger. To detect smaller shifts in the process mean, larger sample sizes of 15 to 25 must be used. Taking large samples on a frequent basis is desirable but clearly not economical. No hard-and-fast rules exist for the frequency of sampling. Samples should be close enough to provide an opportunity to detect changes in process characteristics as soon as possible and reduce the chances of producing a large amount of nonconforming output. However, they should not be so close that the cost of sampling outweighs the benefits that can be realized. SPC is a useful methodology for processes that operate at a low sigma level—for example, the three-sigma level or less. However, when the rate of defects is extremely low, standard control charts are not effective.

Exhibit 2.2 Examples of Goods-Producing and Service-Providing Value Chains

Exhibit 2.2 Examples of Goods-Producing and Service-Providing Value Chains Organization Suppliers Inputs Transformation Process Outputs Customers and Market Segments Auto assembly plant Engine plant Tires Frame Axles Paint Seats Labor Energy Auto parts Specifications Welding Machining Assembly Painting Automobiles Trucks Economy Luxury Rental Trucking Ambulance Police Hospital Pharmaceutical companies Equipment suppliers Food suppliers Organ donors Medical suppliers Patients Beds Staff Drugs Diagnostic equipment Knowledge Admissions Lab testing Doctor diagnosis Food service Surgery Schedules Drug administration Rehabilitation Healthy people Lab results Accurate bills Community health education Heart clinics Pediatrics Emergency and trauma services Ambulatory services Medical specialties and hospital wards State Government Highway and building contractors Employment agencies Food suppliers Equipment suppliers Other governments Labor Energy Information Trash Crimes Disputes Sick people Low-income people Health care benefits Food stamps Legal services Prisons Trash removal Park services License services Police services Tax services Good use of taxpayers' monies Safety net Security Reallocate taxes Clean, safe, and fun parks Disabled people Low-income people Criminals and prisons Corporate taxes Boat licenses Building inspections Weekend vacationers Child custody services Legal court services

Quality Control Practices in Manufacturing: Finished-Goods Control

Finished-goods control is often focused on verifying that the product meets customer requirements. For many consumer products, this consists of functional testing. For instance, a manufacturer of televisions might do a simple test on each unit to make sure it operates properly. Modern technology now allows for such tests to be conducted rapidly and cost-effectively. For example, imaging scanners along food packaging lines easily check for foreign particles.

some differences clearly exist between lean production and Six Sigma

First, they attack different types of problems. Lean production addresses visible problems in processes, for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems, for example, variation in performance. In essence, lean is focused on efficiency by reducing waste and improving process flow, whereas Six Sigma is focused on effectiveness by reducing errors and defects. Another difference is that lean tools are more intuitive and easier to apply by anybody in the workplace, whereas many Six Sigma tools require advanced training and expertise of specialists, particularly in statistical analyses, commonly called Black Belts and Master Black Belts. For example, most workers can easily understand the concept of the 5Ss, but may have more difficulty with statistical methods. Thus, organizations might be well advised to start with basic lean principles and evolve toward more sophisticated Six Sigma approaches. However, it is important to integrate both approaches with a common goal—improving business results. Often Lean Six Sigma is an important part of implementing a strategy built upon sustainability.

GAP Model of Quality: 1-5

Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations. Managers may think they understand why customers buy a good or service, but if their perception is wrong, then all subsequent design and delivery activities may be misdirected. Some organizations, for example, require senior managers to work in front-line jobs a few days every year so they keep in contact with customers and front-line employees. Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications. This represents a mismatch between management perceptions of what constitutes good performance and the actual job and process design specifications that we discussed in Chapter 6. Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation. Gap 3 recognizes that the manufacturing and service delivery systems must execute quality specifications well. One way to improve day-to-day execution, for example, is by doing a better job at service management training. Gap 4 is the discrepancy between actual manufacturing and service-delivery system performance and external communications to the customers. The customer should not be promised a certain type and level of quality unless the delivery system can achieve or exceed that level. Advertising, for example, can help establish customer expectations, and internal training and marketing materials can help set employee performance standards. Gap 5 is the difference between the customer's expectations and perceptions. Gap 5 is where the customer judges quality and makes future purchase decisions. The fifth gap depends on the other four gaps. The theory of the GAP model is that if gaps 1 to 4 are minimized, higher customer satisfaction will result.

GAP Model of Quality: Gap 1

Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations. Managers may think they understand why customers buy a good or service, but if their perception is wrong, then all subsequent design and delivery activities may be misdirected. Some organizations, for example, require senior managers to work in front-line jobs a few days every year so they keep in contact with customers and front-line employees.

GAP Model of Quality: Gap 2

Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications. This represents a mismatch between management perceptions of what constitutes good performance and the actual job and process design specifications that we discussed in Chapter 6.

GAP Model of Quality: Gap 3

Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation. Gap 3 recognizes that the manufacturing and service delivery systems must execute quality specifications well. One way to improve day-to-day execution, for example, is by doing a better job at service management training.

GAP Model of Quality: Gap 4

Gap 4 is the discrepancy between actual manufacturing and service-delivery system performance and external communications to the customers. The customer should not be promised a certain type and level of quality unless the delivery system can achieve or exceed that level. Advertising, for example, can help establish customer expectations, and internal training and marketing materials can help set employee performance standards.

GAP Model of Quality: Gap 5

Gap 5 is the difference between the customer's expectations and perceptions. Gap 5 is where the customer judges quality and makes future purchase decisions. The fifth gap depends on the other four gaps. The theory of the GAP model is that if gaps 1 to 4 are minimized, higher customer satisfaction will result.

15-4 Describe the concepts and philosophy of ISO 9000:2000.

ISO 9000 defines quality system standards. The ISO 9000:2000 standards are supported by the following eight principles: Principle 1—Customer-Focused Organization Principle 2—Leadership Principle 3—Involvement of People Principle 4—Process Approach Principle 5—System Approach to Management Principle 6—Continual Improvement Principle 7—Factual Approach to Decision Making Principle 8—Mutually Beneficial Supplier Relationships

The ISO 9000:2000 standards are supported by the following eight principles:

ISO 9000:2000 provides a set of good basic practices for initiating a basic quality management system and is an excellent starting point for companies with no formal quality assurance program. 1) Principle 1—Customer-Focused Organization 2) Principle 2—Leadership 3) Principle 3—Involvement of People 4) Principle 4—Process Approach 5) Principle 5—System Approach to Management 6) Principle 6—Continual Improvement 7) Principle 7—Factual Approach to Decision Making 8) Principle 8—Mutually Beneficial Supplier Relationships

The decision on whether to outsource is usually based on economics, and break-even analysis can be used to provide insight into the best decision.

If a company decides to make a part, it typically incurs fixed costs associated with purchasing equipment or setting up a production line. Fixed costs do not vary with volume and often include costs of a building, buying or leasing equipment, and administrative costs. However, the variable cost per unit will be less if the work is outsourced to some external supplier. Variable costs are a function of the quantity produced and might include labor, transportation, and materials costs.

1:10:100 Rule

If a defect or service error is identified and corrected at the design stage, it might cost $1 to fix. If it is first detected during the production process, it might cost $10 to fix. However, if the defect is not discovered until it reaches the customer, it might cost $100 to correct.

Quality Control Practices in Manufacturing: Supplier Certification and Management

If incoming materials are of poor quality, then the final manufactured good will certainly be no better. Suppliers should be expected to provide documentation and statistical evidence that they are meeting required specifications. If supplier documentation is done properly, incoming inspection can be completely eliminated. Many companies have formal supplier certification programs to ensure the integrity of incoming materials.

In Control and out of control Porcesses

If no special causes affect the output of a process, we say that the process is in control; when special causes are present, the process is said to beout of control

Quality Control Practices in Manufacturing: In-Process Control

In-process quality control systems are needed to ensure that defective outputs do not leave the process and, more important, to prevent them in the first place. An organization must consider trade-offs between the explicit costs of detection, repair, or replacement and the implicit costs of allowing a nonconformity to continue through the production process. In-process control is typically performed by the people who run the processes on the front lines; this is an example of quality at the source.

Common cause variation

Is Variation that is the result of complex interactions of variations in materials, tools, machines, information, workers, and the environment. Such variation is a natural part of the technology and process design and cannot be controlled; that is, we cannot influence each individual output of the process. It appears at random, and individual sources or causes cannot be identified or explained. However, their combined effect is usually stable and can be described statistically.

Sustainability is vital to long-term business survival becuase

It not only improves the organization's perception among consumers, but it also improves the bottom line through reduced costs. In addition, sustainable practices can lead to increased revenues. For example, organizations that emit greenhouse gases, such as factories and electrical utilities, may one day buy and sell carbon credits in a commodities-type stock market. In addition, many customers favor products and services that are designed and produced in a sustainable way.

17-5 Describe the concepts and philosophy of just-in-time operating systems.

Just-in-time (JIT) was introduced at Toyota during the 1950s and 1960s to address the challenge of coordinating successive production activities. Toyota created the JIT system based on a simple idea: Produce the needed quantity of required parts each day. Then just enough new parts are manufactured or procured to replace those withdrawn. As the process from which parts were withdrawn replenishes the items it transferred out, it draws on the output of its preceding process, and so on. Finished goods are made to coincide with the actual rate of demand, resulting in minimal inventories and maximum responsiveness. A JIT system can produce a steady rate of output to meet the sales rate in small, consistent batch sizes to level loads and stabilize the operating system. This dramatically reduces the inventory required between stages of the production process, thus greatly reducing costs and physical capacity requirements. A JIT system can produce a steady rate of output to meet the sales rate in small, consistent batch sizes to level loads and stabilize the operating system. This dramatically reduces the inventory required between stages of the production process, thus greatly reducing costs and physical capacity requirements. In a JIT process, the customer cycle • withdraws what is needed at the time it is needed according to sales. • The supply cycle creates the good to replenish only what has been withdrawn by the customer. • The storage area is the interface and control point between the customer and supply cycles. Kanban Slips, called Kanban cards (Kanban is a Japanese word that means "visual record" or "card"), are circulated within the system to initiate withdrawal and production items through the production process. The number of Kanban cards is directly proportional to the amount of work-in-process inventory.

Kanbab Steps (confirm)

Kanban Step 1: The withdraw - authorizes the material handler to transfer empty containers to the storage area. Withdraw Kanbans trigger the movement of parts. The material handler detaches the withdraw-ordering Kanban that was attached to the empty container and places the Kanban card in the storage area or on the Kanban receiving post, leaving the empty container(s) Kanban Step 2: A material handler for the supply cycle places a production Kanban on the empty container and this authorizes the gateway workstation to produce parts (step 2). Production Kanbans trigger the production of parts. The container holds a small lot size of parts. Without the authorization of the production Kanban, the gateway workstation and all other workstations may be idle. The gateway workstation must be scheduled to meet the sales rate, and it pulls parts from all other workstations. The other workstations in the process do not need to be scheduled because they get their production orders from the production Kanban that pulls parts through the supply process. The supply process returns a full container of parts to the storage area with the production Kanban attached (step 3). The Kanban process is complete when the material handler for the customer process picks up a full container of parts and takes the production Kanban card off the container. Normally, the material handler drops off a withdrawal Kanban and empty container when picking up a full container of parts.

is the essence of quality control.

Keeping special cause variation from occurring

16-5 Explain process capability and calculate process capability indexes.

Knowing process capability allows one to predict, quantitatively, how well a process will meet specifications and to specify equipment requirements and the level of control necessary. Process capability has no meaning if the process is not in statistical control because special causes will bias the mean or the standard deviation. Therefore, we should use control charts to first eliminate any special causes before computing the process capability. Typical questions that are asked in a process capability study are the following: • Where is the process centered? • How much variability exists in the process? • Is the performance relative to specifications acceptable? • What proportion of output will be expected to meet specifications? The process capability index, Cp, is defined as the ratio of the specification width to the natural tolerance of the process.

17-4 Explain how lean principles are used in manufacturing and service organizations.

Lean manufacturing plants look significantly different from traditional plants. They are clean and organized, devoid of long and complex production lines and high levels of work-in-process, have efficient layouts and work area designs, use multiskilled workers that perform both direct and indirect work such as maintenance, and have no incoming or final inspection stations. Lean principles are not always transferable to "front-office" services that involve high customer contact and service encounters. Different customers, service-encounter situations, and customer and employee behaviors cause the creation and delivery of the service to be much more variable and uncertain than producing a manufactured good in the confines of a factory. However, "back-office" service processes, such as hospital laboratory testing, check processing, and college application processing, are nearly identical to many manufacturing processes.

Basic Principle of Lean Operating System: Improve Quality

Lean operating systems cannot function if raw materials are bad, processing operations are not consistent, materials and tools are not located in the correct place, or machines break down. Poor quality disrupts work schedules and reduces yields, requiring extra inventory, processing time, and space for scrap and parts waiting for rework. All these are forms of waste and increase costs to the customer. Eliminating the sources of defects and errors in all processes in the value chain greatly improves speed, reduces variability, and supports the notion of continuous flow. All of the concepts and methods of quality management, such as product and process design simplification, root cause analysis, mistake-proofing, and statistical process control, are employed to improve quality.

Basic Principle of Lean Operating System: Increase Speed and Response

Lean operating systems focus on quick and efficient response in designing and getting goods and services to market, producing to customer demand and delivery requirements, responding to competitors' actions, collecting payments, and addressing customer inquiries or problems. Perhaps the most effective way of increasing speed and response is to synchronize the entire value chain. By this we mean that not only are all elements of the value chain focused on a common goal but that the transfer of all physical materials and information is coordinated to achieve a high level of efficiency. A champion of lean practices would argue "be fast or last" and "synchronize value chain operations."

Basic Principle of Lean Operating System: Eliminate Waste

Lean, by the very nature of the term, implies doing only what is necessary to get the job done. Any activity, material, or operation that does not add value in an organization is considered waste. The goal is zero waste in all value-creation and support processes in the entire value chain. Exhibit 17.1 shows a variety of specific examples.

The Toyota Motor Company classified waste into seven major categories:

Lean, by the very nature of the term, implies doing only what is necessary to get the job done. Any activity, material, or operation that does not add value in an organization is considered waste. The goal is zero waste in all value-creation and support processes in the entire value chain. Exhibit 17.1 shows a variety of specific examples. 1. Overproduction: for example, making a batch of 100 when there are orders for only 50 in order to avoid an expensive setup, or making a batch of 52 instead of 50 in case there are rejects. Overproduction ties up production facilities, and the resulting excess inventory simply sits idle. 2. Waiting time: for instance, allowing queues to build up between operations, resulting in longer lead times and more work-in-process. 3. Transportation: the time and effort spent in moving products around the factory as a result of poor layout. 4. Processing: the traditional notion of waste, as exemplified by scrap that often results from poor product or process design. 5. Inventory: waste associated with the expense of idle stock and extra storage and handling requirements needed to maintain it. 6. Motion: as a result of inefficient workplace design and location of tools and materials. 7. Production defects: the result of not performing work correctly the first time.

9-4 Explain important factors and decisions in locating facilities.

Location decisions in supply and value chains are based on both economic and noneconomic factors. Facility location is typically conducted hierarchically and involves the following four basic decisions where appropriate: global location decision, regional location decision, community location decision, and local site location decision. The center-of-gravity method takes into account the locations of the facility and markets, demand, and transportation costs in arriving at the best location for a single facility.

17-2c Single Minute Exchange of Dies (SMED)

Long setup times waste manufacturing resources. Short setup times, on the other hand, enable a manufacturer to have frequent changeovers and move toward single-piece flow, thus achieving high flexibility and product variety. Reducing setup time also frees up capacity for other productive uses. Single Minute Exchange of Dies (SMED) refers to the quick setup or changeover of tooling and fixtures in processes so that multiple products in smaller batches can be run on the same equipment. SMED was pioneered by Toyota and other Japanese manufacturers and has been adopted by companies around the world.

5 - M's

Manpower Machinery Method Measurement Materials From PPT not sure what they mean

(sometimes called green manufacturing).

Many companies are actively recovering and recycling parts

Global Location Decision

Many companies must cope with issues of global operations, such as time zones, foreign languages, international funds transfer, customs, tariffs and other trade restrictions, packaging, international monetary policy, and cultural practices. The global location decision involves evaluating the product portfolio, new market opportunities, changes in regulatory laws and procedures, production and delivery economics, sustainability, and the cost to locate in different countries. With this information, the company needs to determine whether it should locate domestically or in another country; what countries are most amenable to setting up a facility (and what countries to avoid); and how important it is to establish a local presence in other regions of the world. The decision by Mercedes-Benz to locate in Alabama was based on the fact that German labor costs were about 50 percent higher than in the southern United States; the plant also gives the company better inroads into the American market and functions as a kind of laboratory for future global manufacturing ventures.

16-1b Quality Control Practices in Services

Many of the same practices described in the previous section can be applied to quality control for back-office service operations such as check or medical insurance claim processing. Front-office services that involve substantial customer contact must be controlled differently. The day-to-day execution of thousands of service encounters is a challenge for any service-providing organization. One way to control quality in services is to prevent sources of errors and mistakes in the first place by using the poka-yoke approach. Another way is to hire and train service providers in service management skills as part of a prevention-based approach to quality control. Customer satisfaction measurement can provide the basis for effective control systems in services. Customer satisfaction instruments often focus on service attributes such as attitude, lead time, on-time delivery, exception handling, accountability, and technical support; product attributes such as reliability and price; and overall satisfaction measures. At FedEx, customers are asked to rate everything from billing to the performance of couriers, package condition, tracking and tracing capabilities, complaint handling, and helpfulness of employees.

15-1 Explain the concepts and definitions of quality.

Many perspectives on quality relate to a good or service's fitness for use. From an operations perspective, however, the most useful definition is how well the output of a manufacturing or service process conforms to the design specifications. Excellent service quality is achieved by the consistent delivery to the customer of a clearly defined customer benefit package and associated process and service encounters, defined by many internal and external standards of performance. An established instrument for measuring the external customer perceptions of service quality is SERVQUAL, which identifies five key dimensions: tangibles, reliability, responsiveness, assurance, and empathy. The principles of total quality are simple: • a focus on customers and stakeholders, • a process focus supported by continuous improvement and learning, and • participation and teamwork by everyone in the organization.

17-2d Small Batch and Single-Piece Flow

One of the practices that inhibits increasing speed and response in manufacturing or service processing of discrete parts such as a manufactured part, invoices, medical claims, or home loan mortgage approvals is batching —the process of producing large quantities of items as a group before they are transferred to the next operation. Batching is often necessary when producing a broad goods or service mix with diverse requirements on common equipment. When making different goods, manufacturers often need to change dies, tools, and fixtures on equipment, resulting in expensive and time-consuming setups and teardowns. For services, preprinted forms or software may have to be changed or modified. By running large batches, setups and teardowns are reduced, providing economies of scale. However, this often builds up inventory that might not match market demand, particularly in highly dynamic markets. A better strategy would be to use small batches or single-piece flow. Single-piece flow is the concept of ideally using batch sizes of one. However, to do this economically requires the ability to change between products quickly and inexpensively.

Rapidly Renewable Materials:

Resources that can be rapidly replenished as they are used, such as some woods, grasses, and cork.

an approach for mistake-proofing processes using automatic devices or methods to avoid simple human error.

Poka-yoke (POH-kah YOH-kay)

the term for the the process of delaying product customization until the product is closer to the customer at the end of the supply chain. An example is a manufacturer of refrigerators that have different door styles and colors.

Postponement

Getting Suppliers to Become Lean and Sustainable: example

Procter & Gamble and health care giant Kaiser Permanente are rating suppliers on energy and water use, recyclables, waste, and greenhouse gases, and using these "scorecards" to make decisions on which suppliers use. Kaiser Permanente, for example, wants to know the percentage of postconsumer waste in every medical product it buys. Some of the questions these companies are asking of suppliers include: What percent of energy consumed is generated from renewable resources? (Kaiser Permanente) How many metric tons of hazardous and nonhazardous waste are produced? (Procter & Gamble)

Toyota created the JIT system based on a simple idea:

Produce the needed quantity of required parts each day. Then just enough new parts are manufactured or procured to replace those withdrawn. As the process from which parts were withdrawn replenishes the items it transferred out, it draws on the output of its preceding process, and so on. Finished goods are made to coincide with the actual rate of demand, resulting in minimal inventories and maximum responsiveness.

Scatter Diagrams

Scatter diagrams are the graphical component of regression analysis. Although they do not provide rigorous statistical analysis, they often point to important relationships between variables, such as the percentage of an ingredient in an alloy and the hardness of the alloy. Scatter diagrams are often used to verify possible causes and effects obtained from cause-and-effect diagrams.

17-2e Quality and Continuous Improvement

Quality at the source requires doing it right the first time, and therefore eliminates the opportunities for waste. Employees inspect, analyze, and control their own work to guarantee that the good or service passed on to the next process stage conforms to specifications. Continuous improvement initiatives are vital in lean environments, as is teamwork among all managers and employees. An important synergy exists between quality improvement and lean thinking. Clearly as an organization continuously improves its processes, it eliminates rework and waste, thus making the processes leaner. Moreover, as an organization tries to make itself leaner by eliminating non-value-added activities and simplifying processes, it reduces the number of opportunities for error, thus improving quality at the same time!

Crosby's Absolutes of Quality Management include the following points:

Quality means conformance to requirements, not elegance. Requirements must be clearly stated so that they cannot be misunderstood. There is no such thing as a quality problem. Problems are functional in nature. Thus, a firm may experience accounting problems, manufacturing problems, design problems, front-desk problems, and so on. There is no such thing as the economics of quality; doing the job right the first time is always cheaper. Quality is free. What costs money are all actions that involve not doing jobs right the first time. The only performance measurement is the cost of quality, which is the expense of nonconformance. Quality cost data are useful to call problems to management's attention, to select opportunities for corrective action, and to track quality improvement over time. The only performance standard is "Zero Defects (ZD)." This simply represents the philosophy of preventing defects in goods and services rather than finding them after the fact and fixing them.

Carbon Neutral:

Reducing energy use and compensating for the amount of carbon dioxide an entity generates through either obtaining energy from renewable sources or 0% setting.

15-7 Describe how to apply the Seven QC Tools.

Seven simple tools—termed the Seven QC (Quality Control) 1. flowcharts, 2. checksheets, 3. histograms, 4. Pareto diagrams, 5. cause-and-effect diagrams, 6. scatter diagrams, and 7. control charts The Seven QC (Quality Control) tools support quality improvement problem-solving efforts. The Seven QC Tools are designed to be simple and visual so that workers at all levels can use them easily and provide a means of communication that is particularly well suited in group problemsolving efforts. Root cause analysis often uses the Seven QC Tools. The root cause is a term used to designate the source of a problem.

17-4b Southwest Airlines The following discussion shows how lean concepts have been used at Southwest Airlines.

Since its inception, Southwest Airlines has shown lean performance when compared to other major airlines. It has consistently been profitable while other major airlines have not. What is even more significant is that Southwest has historically operated small planes and short-distance flights and therefore cannot capitalize on the economies of scale available to larger airlines. The vast majority of total airline cost focuses on operations management activities: traffic servicing (13 percent), aircraft servicing (7 percent), flight operations (47 percent), reservations and sales (10 percent), and passenger in-flight service (7 percent). Note that the first three are low-contact (back-office) operations, whereas passenger in-flight service and reservations and sales are high-contact service management functions. Therefore, taking a lean approach to all operations is vital to airline performance. Southwest is clearly a lean airline—it does more with less than any other airline competitor. Let us examine some of the reasons. Eliminate Waste In the airline industry, idle time is the largest form of waste. Southwest locates its planes at noncongested airports to help it minimize airplane turnaround time. Fewer ancillary services reduce the opportunity for waste and inefficiencies. Southwest also enjoys a much lower employee turnover rate than its competitors, resulting in lower training costs. All the resources at Southwest work to keep the airplanes in the air earning revenue—the primary focus of its strategy. The more time spent on the ground, the less revenue. It relies on motivated employees, a culture focused on the customer, and teamwork to accomplish this strategy. Southwest employees are cross-trained and organized into teams to accomplish all key operational activities. For example, all employees cooperate to ensure timely takeoffs and landings; it is not unusual to see pilots helping load baggage if this will get the plane off on time. This maintains smooth system schedules and reduces the need for reschedules and reticketing, both of which are a form of rework. As one example, in as little as 15 minutes, Southwest can change the flight crew; deplane and board 137 passengers; unload 97 bags, 1,000 pounds of mail, and 25 pieces of freight; load another 123 bags and 600 pounds of mail; and pump 4,500 pounds of jet fuel into the aircraft.7 Increase Speed and Response Southwest uses a much simpler structure and operating system than its competitors. It uses only one type of aircraft—the Boeing 737—making it easier to schedule crews, perform maintenance, and standardize such activities as boarding, baggage storage and retrieval, and cabin operations. It books direct flights from point A to B and does not rely on the hub-and-spoke system used by competitors. This makes it easier for many customers to get to their destinations, instead of, for instance, flying from Orlando to Cincinnati or Detroit and then connecting back to Nashville. A simple operating structure reduces the time it takes to make decisions and allows employees to focus on the key drivers of airline performance such as turnaround time. For example, if Southwest can turn its planes around on average in at most ½ hour while competitors take 1 hour, then, assuming a 90-minute flight, approximately one to two more flights per day per plane can be made. This can be a significant economic and strategic advantage. Southwest was the first airline to introduce ticketless travel. Customers simply get a confirmation number and show up on time. A significant proportion of customers book their flights directly on Southwest.com . No in-flight full-service meals are provided either, simplifying cabin operations and eliminating the need to stock meals, which increases the time to clean up from the previous flight and prepare for the next flight. Instead, Southwest was the first airline to offer continental breakfast in the gate area, and flight attendants serve drinks and peanuts using specially designed trays. If a customer misses a flight, he or she can use the ticket for a future flight with no penalty; this reduces paperwork and processing, contributing to a leaner operation. Improve Quality Simplified processes reduce variability in flight schedules, a major source of customer complaints, and therefore improve customers' perceptions of quality and satisfaction. Southwest encourages carry on baggage; hence, there is less opportunity for losing, misrouting, or damaging baggage. People-oriented employees are carefully chosen and empowered to both serve and entertain passengers. Reduce Cost Short setup and turnaround time translates into higher asset utilization and reduces the need for costly inventories of aircraft. Southwest does not have assigned seating; customers wait on a first-come, first-served basis and board in zones. This lowers costs, and only a few employees are needed to coordinate passenger boarding. In addition, rather than carry the high overhead costs of airplane maintenance and repair, Southwest outsources these tasks to third parties.

the concept of ideally using batch sizes of one.

Single-piece flow

17-3 Explain the concept of Lean Six Sigma and how it is applied to improving operations performance.

Six Sigma is a useful and complementary approach to lean production. Lean Six Sigma draws upon the best practices of both approaches; however, they attack different types of problems. Lean production addresses visible problems in processes, for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems, for example, variation in performance.

Six Sigma and Lean

Six Sigma is a useful and complementary approach to lean production. Lean Six Sigma draws upon the best practices of both approaches; however, they attack different types of problems. Lean production addresses visible problems in processes, for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems, for example, variation in performance.

Kanban

Slips, called Kanban cards (Kanban is a Japanese word that means "visual record" or "card"), are circulated within the system to initiate withdrawal and production items through the production process. The number of Kanban cards is directly proportional to the amount of work-in-process inventory.

• Special (or assignable) cause variation

Special (or assignable) cause variation arises from external sources that are not inherent in the process, appear sporadically, and disrupt the random pattern of common causes.

Specifications

are targets and tolerances determined by designers of goods and services.

developing and using control chats - steps:

Steps 1 through 4 focus on setting up an initial chart; in step 5, the charts are used for ongoing monitoring; and finally, in step 6, the data are used for process capability analysis. 1. Preparation a. Choose the metric to be monitored and controlled—for example, the diameter of a drilled hole, time to process an order, percentage of customer returns, or number of complaints/day. b. Determine the sample size (number of observations in each sample) and frequency of sampling (time between taking successive samples). We will discuss some practical issues related to these decisions in Section 4. c. Set up the control chart. This can be done on a sheet of paper or more efficiently on a computer using a spreadsheet or a commercial software package. 2. Data collection a. a. Record the data. b. b. Calculate relevant statistics: averages, ranges, proportions, and so on. c. c. Plot the statistics on the chart. These tasks may be done by hand or on a computer. 3. Determination of trial control limits a. a. Draw the center line (process average) on the chart. b. b. Compute the upper and lower control limits. Again, spreadsheets and computer software can automate these tasks. 4. Analysis and interpretation a. a. Investigate the chart for lack of control. b. b. Eliminate out-of-control points. c. c. Recompute control limits if necessary. 5. Use as a problem-solving tool d. a. Continue data collection and plotting. e. b. Identify out-of-control situations and take corrective action. 6. Determination of process capability using the control chart data

9-3 Define metrics used in evaluating supply chain performance.

Supply chain managers use numerous metrics to evaluate performance and identify improvements to the design and operation of their supply chains. These include delivery reliability, responsiveness, customer-related measures, supply chain efficiency, and financial measures.

9-2 Describe the key issues in designing supply chains.

Supply chains should support an organization's strategy, mission, and competitive priorities. Many supply chains use contract manufacturing. Outsourcing to contract manufacturers can offer significant competitive advantages, such as access to advanced manufacturing technologies, faster product time-to-market, customization of goods in regional markets, and lower total costs resulting from economies of scale. Supply chains can be designed from two strategic perspectives—providing high efficiency and low cost or providing agile response. A focus on efficiency works best for goods and services with highly predictable demand, stable product lines with long life cycles that do not change frequently, and low contribution margins. A focus on flexibility and response is best when demand is unpredictable, product life cycles are short and change often because of product innovations, fast response is the main competitive priority, customers require customization, and contribution margins are high. Two ways to configure and run a supply chain are as a push or pull system. Push systems work best when sales patterns are consistent and when there are small numbers of distribution centers and products. Pull systems are more effective when there are many production facilities, many points of distribution, and a large number of products.

Outsourcing Decision Break Even: Solved Problem

Suppose that a manufacturer needs to produce a custom aluminum housing for a special customer order. Because it currently does not have the equipment necessary to make the housing, it would have to acquire machines and tooling at a fixed cost (net of salvage value after the project is completed) of $250,000. The variable cost of production is estimated to be $20 per unit. The company can outsource the housing to a metal fabricator at a cost of $35 per unit. The customer order is for 12,000 units. What should it do? Solution VC1 = Variable cost/unit if produced = $20 VC2 = Variable cost/unit if outsourced = $35 FC = fixed costs associated with producing the part = $250,000 Q = quantity produced Using Equation 2.1, we obtain In this case, because the customer order is only for 12,000 units, which is less than the break-even point (Q*), the least-cost decision is to outsource the component. Exhibit 2.6 shows the results of using the Excel Break-Even template to compute the costs and find the optimal decision. The Excel Goal Seek tool may be used to find the break-even point. Select Goal Seek from the appropriate Excel menu and a small dialog box will appear. In the "Set Cell" field, enter B15 (or simply click on this cell); in the "To Value" field, enter 0; and in the "By changing cell" field, enter B4 (or again, simply click on the cell). When you click OK, Excel will find the production volume in cell B4 that results in a cost difference of 0 in cell B15. This is the break-even point. Whenever the anticipated volume is greater than Q*, the firm should produce the part in-house; otherwise it is best to outsource.

Technology

Technology is playing an increasingly important role in supply chain design, and selecting the appropriate technology is critical for both planning and design of supply chains as well as execution. Some important needs in supply chain management include having accurate receipt information identifying goods that have been received, reducing the time spent in staging (between receipt and storage) at distribution centers, updating inventory records, routing customer orders for picking, generating bills of lading, and providing various managerial reports. SCM has benefited greatly from information technology, particularly bar coding and radio frequency identification (RFID) tags, to control and manage these activities. Chapter 5 discussed the use of RFID extensively; RFID has become an important technology in supply chains.

The 5Ss are

The 5Ss are derived from Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain). 1) Sort refers to ensuring that each item in a workplace is in its proper place or identified as unnecessary and removed. 2) Set in order means to arrange materials and equipment so that they are easy to find and use. 3) Shine refers to a clean work area. Not only is this important for safety, but as a work area is cleaned, maintenance problems such as oil leaks can be identified before they cause problems. 4) Standardize means to formalize procedures and practices to create consistency and ensure that all steps are performed correctly. 5) Finally, sustain means to keep the process going through training, communication, and organizational structures.

15-2 Describe the quality philosophies and principles of Deming, Juran, and Crosby.

The Deming philosophy focuses on bringing about improvements in product and service quality by reducing variability in goods and services design and associated processes. Deming professed that higher quality leads to higher productivity and lower costs, which in turn leads to improved market share and long-term competitive strength. In his early work in the United States, Deming preached his 14 Points: Point 1: Create a Vision and Demonstrate Commitment Point 2: Learn the Philosophy Point 3: Understand Inspection Point 4: Stop Making Decisions Purely on the Basis of Cost Point 5: Improve Constantly and Forever Point 6: Institute Training Point 7: Institute Leadership Point 8: Drive Out Fear Point 9: Optimize the Efforts of Teams Point 10: Eliminate Exhortations Point 11: Eliminate Numerical Quotas Point 12: Remove Barriers to Pride in Work Point 13: Encourage Education and Self-Improvement Point 14: Take Action Juran proposed a simple definition of quality: "fitness for use." Unlike Deming, however, Juran did not propose a major cultural change in the organization, but rather sought to improve quality by working within the system familiar to managers. Juran stated that top management speaks in the language of dollars; workers speak in the language of things; and middle management must be able to speak both languages and translate between dollars and things. Thus, to get the attention of top managers, quality issues must be cast in the language they understand—dollars. Crosby's Absolutes of Quality Management include the following points: • Quality means conformance to requirements, not elegance. • There is no such thing as a quality problem. • There is no such thing as the economics of quality; doing the job right the first time is always cheaper. • The only performance measurement is the cost of quality, which is the expense of nonconformance. • The only performance standard is "Zero Defects (ZD)."

15-3 Explain the GAP model and its importance.

The GAP model (see Exhibit 15.1) recognizes that there are several ways to misspecify and mismanage the creation and delivery of high levels of quality. Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations. Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications. Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation. Gap 4 is the discrepancy between actual manufacturing and service-delivery system performance and external communications to the customers. Gap 5 is the difference between the customer's expectations and perceptions.

Pareto Diagrams

The Pareto principle was observed by Joseph Juran in 1950. Juran found that most effects resulted from only a few causes. He named this technique after Vilfredo Pareto (1848-1923), an Italian economist who determined that 85 percent of the wealth in Milan was owned by only 15 percent of the people. Pareto analysis separates the vital few from the trivial many and provides direction for selecting projects for improvement. An example of a Pareto diagram developed from the checksheet in Exhibit 15.4 is shown in Exhibit 15.5. The diagram shows that about 70 percent of defects result from the top two categories, Incomplete and Surface scars. Pareto analysis is often used to analyze cost-of-quality data that we discussed in Section 6 of this chapter. The Solved Problem on page 343 illustrates how this can be applied.

9-1 Explain the concept of supply chain management.

The basic purpose of a supply chain is to coordinate the flow of materials, services, and information among the elements of the supply chain to maximize customer value. The key functions generally include sales and order processing, transportation and distribution, operations, inventory and materials management, finance, and customer service. A goods producing supply chain generally consists of suppliers, manufacturers, distributors, retailers, and customers. Raw materials and components are ordered from suppliers and must be transported to manufacturing facilities for production and assembly into finished goods. Finished goods are shipped to distributors that operate distribution centers.

Cause-and-Effect Diagrams

The cause-and-effect diagram is a simple, graphical method for presenting a chain of causes and effects and for sorting out causes and organizing relationships between variables. Because of its structure, it is often called a fishbone diagram. An example of a cause-and-effect diagram is shown in Exhibit 15.7. At the end of the horizontal line, a problem is listed. Each branch pointing into the main stem represents a possible cause. Branches pointing to the causes are contributors to those causes. The diagram identifies the most likely causes of a problem so that further data collection and analysis can be carried out.

16-3 Describe how to construct and interpret simple control charts for both continuous and discrete data.

The five steps required to develop and construct control charts are (1) preparation such as choose the metric to be monitored and determine sample size and the frequency; (2) collect the data and calculate basic statistics; (3) determine trial upper and lower control limits and center line; (4) investigate and interpret the control chart, eliminate out-of-control points, and recompute the control limits; and (5) use problem-solving tools and take corrective action(s).

16-3b Interpreting Patterns in Control Charts

The location of points and the patterns of points in a control chart enable one to determine, with only a small chance of error, whether or not a process is in statistical control. A process is in control when the control chart has the following characteristics: No points are outside control limits. The number of points above and below the center line is about the same. The points seem to fall randomly above and below the center line. Most points, but not all, are near the center line, and only a few are close to the control limits. You can see that these characteristics are evident in the R-chart in Exhibit 16.1. Therefore, we would conclude that the R-chart is in control. When a process is out of control, we typically see some unusual characteristics. An obvious indication that a process may be out of control is a point that falls outside the control limits. If such a point is found, you should first check for the possibility that the control limits were miscalculated or that the point was plotted incorrectly. If neither is the case, this can indicate that the process average has changed. Another indication of an out-of-control situation is a sudden shift in the average. For example, in Exhibit 16.1, we see that the last eight points in the X ̅-chart are all above the center line, suggesting that the process mean has increased. This might suggest that something is causing excessive tread wear in recent samples, perhaps a different batch of raw materials or improper mixing of the chemical composition of the tires. Some typical rules that are used to identify a shift include: 8 points in a row above or below the center line, 10 of 11 consecutive points above or below the center line, 12 of 14 consecutive points above or below the center line, 2 of 3 consecutive points in the outer one-third region between the center line and one of the control limits, and 4 of 5 consecutive points in the outer two-thirds region between the center line and one of the control limits. A third thing to look for in a control chart is an increasing or decreasing trend. As tools wear down, for example, the diameter of a machined part will gradually become larger. Changes in temperature or humidity, general equipment deterioration, dirt buildup on fixtures, or operator fatigue may cause such a trend. About six or seven consecutive points that increase or decrease in value usually signify a gradual change. A wave or cycle pattern is also unusual and should be suspect. It might be a result of seasonal effects of material deliveries, temperature swings, maintenance cycles, or periodic rotation of operators. Whenever an unusual pattern in a control chart is identified, the process should be stopped until the problem has been identified and corrected.

The point in the supply chain that separates the push system from the pull system is called

The push-pull boundary.

Regional Location Decision

The regional location decision involves choosing a general region of a country, such as the northeast or south. Factors that affect the regional decision include size of the target market, the locations of major customers and sources of materials and supply; labor availability and costs; degree of unionization; land, construction, and utility costs; quality of life; and climate.

16-5a Process Capability Index

The relationship between the natural variation and specifications is often quantified by a measure known as the process capability index . The process capability index, Cp, is defined as the ratio of the specification width to the natural variation of the process. Cp relates the natural variation of the process with the design specifications in a single, quantitative measure. In numerical terms, the formula is (see book)

Root Cause Analysis

The root cause is a term used to designate the source of a problem. Using the medical analogy, eliminating symptoms of problems provides only temporary relief; eliminating the root cause provides long-term relief.

9-5 Describe the role of transportation, supplier evaluation, technology, and inventory in supply chain management.

The selection of transportation services is a complex decision, as varied services are available—rail, motor carrier, air, water, and pipeline. Many companies are moving toward third-party logistics providers. Many companies segment suppliers into categories based on their importance to the business and manage them accordingly. SCM has benefited greatly from information technology, particularly bar coding and radio frequency identification (RFID) tags, to have accurate receipt information identifying goods that have been received, reduce the time spent in staging (between receipt and storage) at distribution centers, update inventory records, route customer orders for picking, generate bills of lading, and provide various managerial reports. Careful management of inventory is critical to supply chain time-based performance in order to respond effectively to customers. VMI essentially outsources the inventory management function in supply chains to suppliers. VMI allows the vendor to view inventory needs from the customer's perspective and use this information to optimize its own production operations, better control inventory and capacity, and reduce total supply chain costs.

Selecting Transportation Services

The selection of transportation services is a complex decision, as varied services are available—rail, motor carrier, air, water, and pipeline. Pipelines have limited use and accessibility and are used primarily for such products as oil and natural gas. Similarly, water transportation is generally limited to transporting large quantities of bulky items—historically, raw materials such as coal, but recently, items such as furniture. Most consumer items are shipped via rail, motor carrier, and air. The critical factors in selecting a transportation mode are speed, accessibility, cost, and capability. Many companies are moving toward third-party logistics providers. UPS Supply Chain Solutions (SCS), a subsidiary of the giant delivery company and its fastest-growing division, is one provider that is focusing on all aspects of the supply chain, including order processing, shipping, repair of defective or damaged goods, and even staffing customer service phone centers.

Local Site Location Decision

The site location decision involves the selection of a particular location within the chosen community. Site costs, proximity to transportation systems, utilities, payroll and local taxes, sustainability issues, and zoning restrictions are among the factors to be considered.

15-5 Describe the philosophy and methods of Six Sigma.

The term Six Sigma is based on a statistical measure that equates to at most 3.4 errors or defects per million opportunities. The core philosophy of Six Sigma is based on some key concepts: • emphasizing dpmo or epmo as a standard metric that can be applied to all parts of an organization: manufacturing, engineering, administrative, software, and so on; • providing extensive training followed by project team deployment to improve profitability, reduce non-value-added activities, and achieve cycle time reduction; • focusing on corporate sponsors responsible for supporting team activities to help overcome resistance to change, obtain resources, and focus the teams on overall strategic objectives; • creating highly qualified process improvement experts ("green belts," "black belts," and "master black belts") who can apply improvement tools and lead teams; • ensuring that appropriate metrics are identified early in the process and that they focus on business results; and • setting stretch objectives for improvement. The Six Sigma problem-solving approach is Define, Measure, Analyze, Improve, and Control (DMAIC).

Quality Management refers to

The ways goods and services are managed to ensure their quality meets customer needs. - From the Book: the systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality to meet the needs of customers.

Zero-Energy Buildings:

These structures incorporate systems to both generate and conserve energy, so net energy consumption over a period of a year is zero.

Lean manufacturing plants look significantly different from traditional plants.

They are clean and organized, devoid of long and complex production lines and high levels of work-in-process, have efficient layouts and work area designs, use multiskilled workers that perform both direct and indirect work such as maintenance, and have no incoming or final inspection stations.

5-Why Technique.

This approach forces one to redefine a problem statement as a chain of causes and effects to identify the source of the symptoms by asking why, ideally five times. In a classic example at Toyota, a machine failed because a fuse blew. Replacing the fuse would have been the obvious solution; however, this action would have addressed only the symptom of the real problem. Why did the fuse blow? Because the bearing did not have adequate lubrication. Why? Because the lubrication pump was not working properly. Why? Because the pump axle was worn. Why? Because sludge seeped into the pump axle, which was determined to be the root cause. Toyota attached a strainer to the lubricating pump to eliminate the sludge, thus correcting the problem of the machine failure.

Passive Solar:

This refers to capitalizing on the warmth and light of the sun with simple strategies instead of complex technologies, such as the use of windows and heat-absorbing and/or reflective materials as opposed to heating and cooling systems.

The Value Chain at Buhrke Industries, Inc.

To illustrate the input-output perspective of a value chain, we highlight Buhrke Industries Inc., located in Arlington Heights, Illinois, which provides stamped metal parts to many industries, including automotive, appliance, computer, electronics, hardware, housewares, power tools, medical, and telecommunications. A simplified view of Buhrke's value chain is shown in Exhibit 2.3. Buhrke's objective is to be a customer's best total-value producer with on-time delivery, fewer rejects, and high-quality stampings. However, the company goes beyond manufacturing goods; it prides itself in providing the best service available as part of its customer value chain. Service is more than delivering a product on time. It's also partnering with customers by providing personalized service for fast, accurate response; customized engineering designs to meet customer needs; preventive maintenance systems to ensure high machine uptime; experienced, highly trained, long-term employees; and troubleshooting by a knowledgeable sales staff. Suppliers and other value chain inputs include people, information, and physical goods—for example, engineering blueprints and specifications, rolled steel, factory equipment and lubricants, pallets and boxes, employment agencies, inbound shipping, and outside training and industrial marketing firms. Value-creation processes include tooling, inspection, production, finishing, and sometimes assembly into a complete subassembly. Outputs include the stamped metal parts and post sale service outcomes such as out-in-the-field consulting and troubleshooting by company employees. General management processes coordinate processes, often in different functional areas, while support processes include hiring, medical benefits, and accounting. As many as 100 processes are required for Buhrke to perform its work and create value for its customers.

15-4 ISO 9000:2000

To standardize quality requirements for European countries within the Common Market and those wishing to do business with those countries, a specialized agency for standardization, the International Organization for Standardization (ISO), founded in 1946 and composed of representatives from the national standards bodies of 91 nations, adopted a series of written quality standards in 1987. They were revised in 1994, and again (significantly) in 2000. The most recent version is called the ISO 9000:2000 family of standards. The standards have been adopted in the United States by the American National Standards Institute (ANSI) with the endorsement and cooperation of the American Society for Quality (ASQ) and are recognized by about 100 countries.

1) Flowcharts

To understand a process, one must first determine how it works and what it is supposed to do. Flowcharting, or process mapping, identifies the sequence of activities or the flow of materials and information in a process. Once a flowchart is constructed, it can be used to identify quality problems as well as areas for productivity improvement. Questions such as "What work activities can be combined, simplified, or eliminated?" "Are process capacities well planned?" and "How is quality measured at points of customer contact?"

17-2f Total Productive Maintenance

Total productive maintenance (TPM) is focused on ensuring that operating systems will perform their intended function reliably. The goal of TPM is to prevent equipment failures and downtime—ideally, to have "zero accidents, zero defects, and zero failures" in the entire life cycle of the operating system. TPM seeks to maximize overall equipment effectiveness and eliminate unplanned downtime, create worker "ownership" of the equipment by involving them in maintenance activities, and foster continuous efforts to improve equipment operation through employee involvement activities. Because of its importance in lean thinking, TPM has been called "lean maintenance." Lean maintenance is more than preventing failures of equipment and processes; it now includes maintenance and backup systems for software and electronic network systems such as the Internet or wireless networks.

Two ways to configure and run a supply chain are

as a push system or pull system.

16-2 Explain types of variation and the role of statistical process control (SPC).

Variation occurs for many reasons, such as inconsistencies in material inputs; changes in environmental conditions (temperature, humidity); machine maintenance cycles; customer participation and self-service; tool wear; and human fatigue. Common cause variation is the responsibility of management while front-line employees focus more on special cause variation.

Special (or assignable) cause variation

Variation that arises from external sources that are not inherent in the process, appear sporadically, and disrupt the random pattern of common causes. Special cause variation occurs sporadically and can be prevented or at least explained and understood. For example, a tool might break during a process step, a worker might be distracted by a colleague, or a busload of tourists stops at a restaurant (resulting in unusual wait times). Special cause variation tends to be easily detectable using statistical methods because it disrupts the normal pattern of measurements. When special causes are identified, short-term corrective action generally should be taken by those who own the process and are responsible for doing the work, such as machine operators, order fulfillment workers, and so on.

Key Formulas for an b-bar chart aned R-bar chart are

X-doublebar = R-Bar = UCLR = LCLR =

High quality of goods and services provides an organization with

a competitive edge; reduces costs due to returns, rework, scrap, and service upsets; increases productivity, profits, and other measures of success; and, generates satisfied customers who reward the organization with continued patronage and favorable word-of-mouth advertising.

A "six-sigma" quality level corresponds to

a dpmo or epmo equal to 3.4 (this is derived from some advanced statistical calculations), which represents almost perfect quality.

Many supply chains use contract manufacturing. A contract manufacturer is

a firm that specializes in certain types of goods-producing activities, such as customized design, manufacturing, assembly, and packaging, and works under contract for end users.

A contract manufacturer is

a firm that specializes in certain types of goodsproducing activities, such as customized design, manufacturing, assembly, and packaging, and works under contract for end users.

A Kanban is

a flag or a piece of paper that contains all relevant information for an order: part number, description, process area used, time of delivery, quantity available, quantity delivered, production quantity, and so on.

A Kanban is

a flag or a piece of paper that contains all relevant information for an order: part number, description, process area used, time of delivery, quantity available, quantity delivered, production quantity, and so on. Because of this, a JIT system is sometimes called a Kanban system.

The Supply Chain Operations Reference (SCOR) model is

a framework for understanding the scope of supply chain management (SCM) that is based on five basic functions involved in managing a supply chain: plan, source, make, deliver, and return.

We introduced the concept of a supply chain in Chapter 2, noting that a supply chain is

a key subsystem of a value chain that focuses primarily on the physical movement of goods and materials along with supporting information through the supply, production, and distribution processes.

Statistical process control (SPC) is

a methodology for monitoring the quality of manufacturing and service-delivery processes to help identify and eliminate unwanted causes of variation.

A value chain is

a network of facilities and processes that describes the flow of materials, finished goods, services, information, and financial transactions from suppliers, through the facilities and processes that create goods and services, and those that deliver them to the customer.

The term "six sigma" is based on

a statistical measure that equates to at most 3.4 errors or defects per million opportunities. An ultimate "stretch" goal of all organizations that adopt a Six Sigma philosophy is to have all critical processes, regardless of functional area, at a sixsigma level of capability—a level of near-zero defects.

A JIT system can produce

a steady rate of output to meet the sales rate in small, consistent batch sizes to level loads and stabilize the operating system. This dramatically reduces the inventory required between stages of the production process, thus greatly reducing costs and physical capacity requirements.

These five dimensions of Service Quality are normally measured using

a survey instrument with ordinal scales such as yes or no or a 5-or 7-point Likert scale. A typical 5-point Likert scale is 1 = Strongly disagree; 2 = Disagree; 3 = Neither agree nor disagree; 4 = Agree, 5 = Strongly agree. SERVQUAL is designed to apply to all service industries; however, dimensions specific to a certain industry or business or process may provide more accurate measures.

The set of activities involved in providing goods and services to customers is called

a value chain, and helps to characterize the scope of operations management activities

Facility location is typically conducted hierarchically and involves the following four basic decisions where appropriate:

a. Global Location Decision b. Regional Location Decision c. Community Location Decision d. Local Site Location Decision

Designing control charts involves two key issues:

a. sample size, and b. sampling frequency.

JIT practice is to set the lot size or container size equal to

about 5 to 20 percent of a day's demand or between 20 to 90 minutes worth of demand. The number of containers in the system determines the average inventory levels. The following equation is used to calculate the number of Kanban cards (K) required: K = Average Daily demand during lead time plus safety stock / number of units per cntainer K = d(p+w)(1+α)/C where K = the number of Kanban cards in the operating system. d = the average daily production rate as determined from the master production schedule. w = the waiting time of Kanban cards in decimal fractions of a day (that is, the waiting time of a part). p = the processing time per part, in decimal fractions of a day. C = the capacity of a standard container in the proper units of measure (parts, items, etc.). α = a policy variable determined by the efficiency of the process and its workstations and the uncertainty of the workplace, and therefore a form of safety stock usually ranging from 0 to 1. However, technically, there is no upper limit on the value of α. The number of Kanban cards is directly proportional to the amount of work-in-process inventory. Managers and employees strive to reduce the number of cards in the system through reduced lead time (p or w), lower a values, or through other improvements. The maximum authorized inventory in the operating system is K × C.

Common causes of variation generally account for

about 80 to 95 percent of the observed variation in a process. They can be reduced only if better technology, process design, or training is provided. This clearly is the responsibility of management.

forward integration refers to

acquiring capabilities toward distribution or even customers.

OM managers must evaluate the trade-offs between

adopting different recovery options for a particular physical good. For example, how does the total cost of remanufacturing compare to cannibalizing parts or subassemblies? In addition, the OM manager must consider social and environmental sustainability criteria and issues in the final analysis of manufactured goods recovery.

Examples of pull systems are

airplane manufacturers such as Boeing, and manufacturers of custom machine tools.

These characteristics are present in

all business processes; thus, Six Sigma can easily be applied to a wide variety of transactional, administrative, and service areas in both large and small firms.

We will describe a value chain from two different perspectives:

an input-output framework and a Pre-and post production services framework.

A kaizen blitz is

an intense and rapid improvement process in which a team or a department throws all its resources into an improvement project over a short time period, as opposed to traditional kaizen applications, which are performed on a part-time basis.

A kaizen blitz is

an intense and rapid improvement process in which a team or a department throws all its resources into an improvement project over a short time period, as opposed to traditional kaizen applications, which are performed on a part-time basis. Blitz teams are generally comprised of employees from all areas involved in the process who understand it and can implement changes on the spot.

Although not every organization operates in the global business environment, modern technology and distribution have made it feasible and attractive for both large and small companies to develop value chains that span international boundaries. A multinational enterprise is

an organization that sources, markets, and produces its goods and services in several countries to minimize costs, and to maximize profit, customer satisfaction, and social welfare. Their value chains provide the capability to source, market, create, and deliver their goods and services to customers worldwide.

Supply chains should support

an organization's • strategy, • mission, and • competitive priorities. Thus, both strategic and operational perspectives must be included in supply chain design decisions.

Six Sigma has developed from simply a way of measuring quality to

an overall strategy to accelerate improvements and achieve unprecedented performance levels. An organization does this by finding and eliminating causes of errors or defects in processes by focusing on characteristics that are critical to customers.

Managers can use the GAP Model to

analyze goods and services and the processes that make and deliver them to identify and close the largest gaps and improve performance. Failure to understand and minimize these gaps can seriously degrade the quality of a service and present the risk of losing customer loyalty.

In Six Sigma terminology, a defect is

any mistake or error that is passed on to the customer (many people also use the term nonconformance).

A defect is

any mistake or error that is passed on to the customer.

Lean thinking refers to

approaches that focus on the elimination of waste in all forms, and smooth, efficient flow of materials and information throughout the value chain to obtain faster customer response, higher quality, and lower costs.

Internal failure costs

are costs incurred as a result of unsatisfactory quality that is found before the delivery of a good or service to the customer.

External failure costs

are incurred after poor-quality goods or services reach the customer. They include: 1) costs due to customer complaints and returns including • rework on returned items, • cancelled orders, • discount coupons, and • freight premiums; 2) goods and services recall costs and warranty and service guarantee claims including • the cost of repair or replacement as well as associated administrative costs; and 3) product-liability costs resulting from legal actions and settlements.

In manufacturing, control is generally applied

at three key points in the supply chain: (1) at the receiving stage from suppliers, (2) during various production processes, and (3) at the finished-goods stage.

Supply chain efficiency measures include

average inventory value and inventory turnover.

Why some firms might not consolidate elements of a value chain

because it adds more complexity to managing the value chain. Alternatively, decentralizing value chain activities lessens the control that a firm has over cost, quality, and other important business metrics, and often leads to higher levels of risk.

The location of the push-pull boundary

can affect how responsive a supply chain is. Many firms try to push as much of the finished product as possible close to the customer to speed up response and reduce work-in-process inventory requirements.

One of the properties of a normal distribution is that 99.73 percent of the observations will fall within 3 standard deviations from the mean. Thus, a process that is in control

can be expected to produce a very large percentage of output between μ − 3σ and μ + 3σ, where μ is the process average. Therefore, the natural variation of the process can be estimated by μ ± 3σ and characterizes the capability of the process. One way of computing the standard deviation in this formula is to take a sample of data, compute the sample standard deviation, s, and use it as an estimate of σ. A second approach, often used in conjunction with an X ̅- and R-chart, is to estimate σ by dividing the average range by a constant, d2, which can be found in Appendix B. That is, sigma = R-bar/d2) ,<- (d sub 2)

Cost-of-quality analysis

can help operations managers communicate with senior level managers, identify and justify major opportunities for process improvements, and evaluate the importance of quality and improvement in operations.

Many applications of poka-yoke are

deceptively simple, yet creative, and usually they are inexpensive to implement. One of Shingo's first poka-yoke devices involved a process at the Yamada Electric plant in which workers assemble a switch having two push buttons supported by two springs. Occasionally, the worker would forget to insert a spring under each button, which led to a costly and embarrassing repair at the customer's facility. In the old method, the worker would take two springs out of a large parts box and then assemble the switch. To prevent this mistake, the worker was instructed first to place two springs in a small dish in front of the parts box, and then assemble the switch. If a spring remained in the dish, the operator knew immediately that an error had occurred. The solution was simple, cheap, and provided immediate feedback to the employee.

The Six Sigma concept characterizes quality performance by

defects per million opportunities (dpmo), computed as: dpmo = (Number of defects discovered/opportunities for error) × 1,000,000 [15.2]

In Six Sigman, we can measure output quality by

defects per unit (DPU), a popular quality measure that we introduced in Chapter 3:

Unlike other management gurus and consultants, Deming never...

defined or described quality precisely. In his last book, he stated, "A product or a service possesses quality if it helps somebody and enjoys a good and sustainable market."

Efficient supply chains are

designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow.

Finished goods are shipped to

distributors who operate distribution centers.

six sigma "problem solved"

do problem in book

The ISO 9000:2000 standards prescribe

documentation for all processes affecting quality and suggest that compliance through auditing leads to continuous improvement.

Good control systems make

economic sense. The importance of control is often explained by the 1:10:100 Rule:If a defect or service error is identified and corrected at the design stage, it might cost $1 to fix. If it is first detected during the production process, it might cost $10 to fix. However, if the defect is not discovered until it reaches the customer, it might cost $100 to correct. The dollar values and the exact ratios differ among firms and industries. However, the fact is that the cost of repair or service recovery grows dramatically the further that defects and errors move along the value chain. This rule clearly supports the need for control and a focus on prevention by building quality "at the source."

The decision on whether to outsource is usually based on

economics, and break-even analysis can be used to provide insight into the best decision. If a company decides to make a part, it typically incurs fixed costs associated with purchasing equipment or setting up a production line. Fixed costs do not vary with volume and often include costs of a building, buying or leasing equipment, and administrative costs. However, the variable cost per unit will be less if the work is outsourced to some external supplier. Variable costs are a function of the quantity produced and might include labor, transportation, and materials costs.

Efficient supply chains are designed for

efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow.

Quality at the source

eliminates opportunities for waste and is a fundamental approach in lean thinking.

For companies in the early stages of developing a quality program, the ISO 9000:2000 standards

enforce the discipline of control that is necessary before they can seriously pursue continuous improvement. The requirements of periodic audits reinforce the stated quality system until it becomes ingrained in the company.

The task of quality control is to

ensure that a good or service conforms to specifications and meets customer requirements by monitoring and measuring processes and making any necessary adjustments to maintain a specified level of performance

The task of quality control is to

ensure that a good or service conforms to specifications and meets customer requirements by monitoring and measuring processes and making any necessary adjustments to maintain a specified level of performance.

Quality control is vital in

ensuring consistent service experiences and creating customer satisfaction. Simple control mechanisms such as checklists and standard operating procedures provide cost-effective means of doing this. Contacting customers after a poor service experience only uncovers the damage that has already occurred, requires extraordinary measures for service recovery, and often results in lost customers.

The Supply Chain Operations Reference (SCOR) model is based on

five basic functions: 1. plan, 2. source, 3. make, 4. deliver, and 5. return.

Responsive supply chains focus on

flexibility and responsive service and are able to react quickly to changing market demand and requirements.

Total productive maintenance (TPM) is

focused on ensuring that operating systems will perform their intended function reliably.

Statistical process control (SPC) is a methodology for monitoring the quality of manufacturing and service-delivery processes to help identify and eliminate unwanted causes of variation. Variation occurs

for many reasons, such as inconsistencies in material inputs; changes in environmental conditions (temperature, humidity); machine maintenance cycles; customer participation and self-service; tool wear; and human fatigue. Some variation is obvious, such as inconsistencies in meal delivery times or food quantity at a restaurant; other variation—such as minute differences in physical dimensions of machined parts—is barely perceptible, but can be determined through some type of measurement process.

The first step in developing X ̅-chars and R-charts is to

gather data. Usually, about 25 to 30 samples are collected. Samples between size 3 and 10 are generally used, with 5 being the most common. The number of samples is indicated by k, and n denotes the sample size. For each sample i, the mean (denoted X ̅i) and the range (Ri) are computed. These values are then plotted on their respective control charts. Next, the overall mean and average range calculations are made. These values specify the center lines for the X ̅-chars and R-charts, respectively. The overall mean (denoted X ̿) is the average of the sample means The average range R ̅ is similarly computed, using the formula

Values of Cp exceeding 1 indicate

good capability. To account for the process centering, one-sided capability indexes are often used: (see book)

A focus on efficiency works best for

goods and services with • highly predictable demand, • stable product lines with long life cycles that do not change frequently, and • low contribution margins.

The economist Adam Smith, in his 1776 book The Wealth of Nations, recognized that economic exchange is based on the production of goods that acquire value during design and manufacturing processes. However,

he also noted that "real value" is represented by "value in-use"; that is, a good such as a cell phone provides value only when used, and thus reflects the importance of services in a value proposition. The focus on value has forced many traditional goods-producing companies to add services and, increasingly, digital content to their customer benefit packages. If the quality or features of goods cannot be improved at a reasonable cost and prices cannot be lowered, then enhanced or additional services may provide better total value to customers.

The success of the entire value chain depends on

how it is designed and managed. This includes 1. measuring performance (which we address in the next chapter) and 2. using the feedback from measurements to improve all aspects of the value chain.

Average inventory value tells managers

how much of the firm's assets are tied up in inventory.

From an operations perspective, however, the most useful definition of Quality is

how well the output of a manufacturing or service process conforms to the design specifications.

Value chain integration includes

improving internal processes for the client as well as external processes that tie together suppliers, manufacturers, distributors, and customers. Other benefits are lower total value chain costs to the client, reduced inventory obsolescence, better global communication among all parties, access to new technologies, and better customer service. Some firms, such as Walmart, manage value chain integration themselves. Others make use of third-party "system integrators" such as Exel (www.exel.com ) to manage the process. Exel manages value chain activities across industries and geographic regions to reduce costs, accelerate product movement, and allow manufacturers and retailers to focus on their core business. Exel is able to deliver services and solutions such as consulting, e-commerce, transport, global freight, warehousing, home delivery, labeling, and co-packing, on a local, regional, or global basis.

If no special causes affect the output of a process, we say that the process is

in control;

The poka-yoke concept was developed and refined

in the early 1960s by the late Shigeo Shingo, a Japanese manufacturing engineer who developed the Toyota production system.

Visual controls are

indicators for operating activities that are placed in plain sight of all employees so that everyone can quickly and easily understand the status and performance of the work system.

Six Sigma

is a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service processes by focusing on outputs that are critical to customers, resulting in a clear financial return for the organization.

A discrete metric is one that

is calculated from data that are counted. A dimension on a machined part is either within tolerance or out of tolerance, an order is either complete or incomplete, or a customer made a complaint or not about a service experience. We can count the percentage or number of parts within tolerance, the percentage or number of complete orders, and the percentage or number of complaints. These are examples of discrete metrics and usually require control charts that we call p-or c-charts.

Service quality

is consistently meeting or exceeding customer expectations (external focus) and service-delivery system performance criteria (internal focus) during all service encounters.

Fitness for use

is the ability of a good or service to meet customer needs.

Quality of conformance

is the extent to which a process is able to deliver output that conforms to the design specifications.

As it relates to the SCOR Model, each major player in the supply chain illustrated in Exhibit 9.1, such as a supplier or retail store, would typically manage

its own supply chain using this framework, in essence, chaining together these functions within the broader supply chain.

17-5 Just-in-Time Systems

just-in-time (JIT) was introduced at Toyota during the 1950s and 1960s to address the challenge of coordinating successive production activities. An automobile, for instance, consists of thousands of parts. It is extremely difficult to coordinate the transfer of materials and components between production operations. Traditional factories use a push system , which produces finished-goods inventory in advance of customer demand using a forecast of sales. Parts and subassemblies are "pushed" through the operating system based on a predefined schedule that is independent of actual customer demand. In a push system, a model that might not be selling well is still produced at the same predetermined production rate and held in finished goods inventory for future sale, whereas enough units of a model in high demand might not get produced. Another problem was that traditional automobile production systems relied on massive and expensive stamping press lines to produce car panels. The dies in the presses weighed many tons and specialists needed up to a full day to switch them for a new part. To compensate for long setup times, large batch sizes were produced so that machines could be kept busy while others were being set up. This resulted in high work-in-process inventories and high levels of indirect labor and overhead.

Many other approaches to quality improvement have been developed and refined over the years. Two powerful approaches are

kaizen and poka-yoke.

Deming professed that higher quality

leads to higher productivity and lower costs, which in turn leads to improved market share and long-term competitive strength.

Manufacturing and service operations that apply the principles of lean enterprise are often called

lean

Manufacturing and service operations that apply the principles of lean enterprise are often called

lean operating systems ."

Six Sigma is a useful and complementary approach to

lean production. For example, a cycletime-reduction project might involve aspects of both. Lean tools might be applied to streamline an order entry process. This application leads to the discovery that significant rework occurs because of incorrect addresses, customer numbers, or shipping charges and results in high variation of processing time. Six Sigma tools might then be used to drill down to the root cause of the problems and identify a solution. Because of these similarities, many practitioners have begun to focus on Lean Six Sigma, drawing upon the best practices of both approaches. Both are driven by customer requirements, focus on real dollar savings, have the ability to make significant financial impacts on the organization, and can easily be used in nonmanufacturing environments. Both use basic root cause, process, and data analysis techniques.

Many organizations have been using OM tools and principles in sustainability efforts. These tools—such as

lean thinking, kaizen, Six Sigma, and value stream mapping

Technology enables processes and value chains to

lower the cost of goods and services, speed delivery, and provide customization where required. Examples include rental car transponders to speed checkout and check-in, computer-driven machines to produce manufactured parts, geographic and wireless information systems to locate vehicles and inventory, and electronic patient medical records.

At each factory, distribution center, and retail store, inventory generally is

maintained to improve the ability to meet demand quickly.

Exhibit 9.3 Example of a Manufactured Goods Recovery (Reverse Logistics) Supply Chain

see book

An example of a postponement strategy would be to

manufacture the refrigerator without the door and maintain inventories of doors at the distribution centers. When orders arrive, the doors can be quickly attached and the unit can be shipped. This would reduce inventory requirements.

Performance standards are analogous to

manufacturing specifications. For example, "on-time arrival" for an airplane might be specified as within 15 minutes of the scheduled arrival time. The target is the scheduled time, and the tolerance is specified to be 15 minutes.

A supply chain can be viewed from "left to right"—that is,

materials, information, and goods are moved or pushed downstream from supplier to customer.

Some firms might consolidate all processes for a specific product or product line in a single facility; such a strategy provides

more control, but it adds more complexity to managing the value chain.

As the box on the Peanut Corporation of America illustrates, food supply chains are under increasing quality risks due to global sourcing. Thousands of global supply chains create and deliver food to your local supermarket or grocery store. For example, the ingredients in a Nutri-Grain bar includes citric acid from Europe, guar gum from India, carrageenan from the Philippines, malic acid from Italy, corn syrup from the USA, vitamin and mineral supplements (B1, B2, iron, folic acid) from China, and sodium alginate from Scotland. For operations management, an important challenge is to manage the flow of each raw material and ingredient from its source, such as a small farm, to factories to distributors to retailers and ultimately to consumers to ensure a safe food supply. This includes monitoring possible contamination from bacteria, pesticides, carcinogens, and heavy metals, as well as the cleanliness of food processing and storage facilities. "It's a global information management problem," says Mr. Blissett, head of consumer products for IBM.

no back

Many OM practices can improve environmental sustainability in value chains. These include designing goods and services using recyclable and environmentally friendly materials, remanufacturing, designing facilities and using equipment that conserves energy, using electronic media and technology to reduce paper and fuel, using transportation modes that minimize costs and carbon output, and cleaning and reusing water used for manufacturing

no back

Service facilities such as post offices, branch banks, dentist offices, and fire stations typically need to be in close proximity to the customer. In many cases, the customer travels to the service facility, whereas in others, such as mobile X-ray and imaging centers or "on-call" computer repair services, the service travels to the customer.

no back

Leading organizations are paying increased attention to the sustainability of their environmental, social, and economic systems, and the design and management of value chains can have a significant impact on these.

no back for this card

Responsive supply chains have the ability to quickly respond to market changes and conditions faster than traditional supply chains; are supported by information technology that provides real-time, accurate information to managers across the supply chain; and use information to identify market changes and redirect resources to address these changes. Companies such as Apple and Nordstrom are examples of companies having responsive supply chains.

no bakc

Defects per Unit

number of defects discovered / number of units produced

Issues of supply chain structure and facility location represent broad strategic decisions in supply chain design. Managing a supply chain also requires

numerous operational decisions, such as  selecting transportation services,  evaluating suppliers,  managing inventory, and  other issues.

(DMAIC) employs five phases: 5) Control (C)

o Determine how to maintain the improvements. o Put tools in place to ensure that the key variables remain within the maximum acceptable ranges under the modified process.

(DMAIC) employs five phases: 2) Measure (M)

o Determine how to measure the process and how it is performing. o Identify the key internal processes that influence CTQs and measure the defects currently generated relative to those processes.

(DMAIC) employs five phases: 3) Analyze (A)

o Determine the most likely causes of defects. o Understand why defects are generated by identifying the key variables that are most likely to create process variation.

(DMAIC) employs five phases: 1) Define (D)

o Identify customers and their priorities. o Identify a project suitable for Six Sigma efforts based on business objectives as well as customer needs and feedback. o Identify CTQs (critical-to-quality characteristics) that the customer considers to have the most impact on quality.

(DMAIC) employs five phases: 4) Improve (I)

o Identify means to remove the causes of the defects. o Confirm the key variables and quantify their effects on the CTQs. o Identify the maximum acceptable ranges of the key variables and a system for measuring deviations of the variables. o Modify the process to stay within the acceptable range.

Six Sigma has garnered a significant amount of credibility over the last decade because

of its acceptance at such major firms as Motorola, Allied Signal (now part of Honeywell), Texas Instruments, and General Electric.

Batching is

often necessary when producing a broad goods or service mix with diverse requirements on common equipment. By running large batches, setups and teardowns are reduced, providing economies of scale. However, this often builds up inventory that might not match market demand, particularly in highly dynamic markets. A better strategy would be to use small batches or single-piece flow. However, to do this economically requires the ability to change between products quickly and inexpensively.

A pull system is

one in which employees at a given operation go to the source of required parts, such as machining or subassembly, and withdraw the units as they need them.

As we discussed at the beginning of this chapter, offshoring represents

one of the most controversial topics in business today.

A discrete metric is

one that is calculated from data that are counted.

A continuous metric is

one that is calculated from data that are measured as the degree of conformance to a specification on some continuous scale of measurement.

A continuous metric is

one that is calculated from data that are measured as the degree of conformance to a specification on some continuous scale of measurement. Examples are length, weight, and time. Customer waiting time and order lead time are other examples. Continuous data usually require X ̅-("x-bar") and R-charts.

A "perfect order" is defined as

one that is delivered meeting all customer requirements, such as delivery date, condition of goods, accuracy of items, correct invoice, and so on.

Process capability refers to the natural variation in a process that results from common causes. Knowing process capability allows

one to predict, quantitatively, how well a process will meet specifications and to specify equipment requirements and the level of control necessary. Process capability has no meaning if the process is not in statistical control because special causes will bias the mean or the standard deviation. Therefore, we should use control charts to first eliminate any special causes before computing the process capability.

when special causes are present, the process is said to be

out of control

when special causes are present, the process is said to be

out of control.

A great servicescape and facility layout can seldom

overcome a poor location decision, simply because customers may not have convenient access, which is one of the most important requirements for a service facility.

The goal of total productive maintenance is to

prevent equipment failures and downtime—ideally, to have "zero accidents, zero defects, and zero failures" in the entire life cycle of the operating system.

SPC is a useful methodology for

processes that operate at a low sigma level, for example the three sigma level or less. However, when the rate of defects is extremely low, standard control charts are not effective. For example, when using a p-chart for a process with a high sigma level, few defects will be discovered even with large sample sizes. For instance, if p = .001, a sample size of 500 will have an expected number of only 500(.001) = 0.5 defects. Hence, most samples will have zero or only one defect, and the chart will provide little useful information for control. Using much larger sample sizes would only delay the timeliness of information and increase the chances that the process may have changed during the sampling interval. Small sample sizes will typically result in a conclusion that any observed defect indicates an out-of-control condition, thus implying that a controlled process will have zero defects, which may be impractical. In addition, conventional SPC charts will have higher frequencies of false alarms and make it difficult to evaluate process improvements. These issues are important for Six Sigma practitioners to understand, in order not to blindly apply tools that may not be appropriate.

A push system

produces finished-goods inventory in advance of customer demand using a forecast of sales.

A push system

produces goods in advance of customer demand using a forecast of sales and moves them through the supply chain to points of sale, where they are stored as finished-goods inventory.

A push system

produces goods in advance of customer demand using a forecast of sales and moves them through the supply chain to points of sale, where they are stored as finished-goods inventory. Examples of push systems are "big-box" retailers such as Best Buy and department stores such as Macy's.

A pull system

produces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages.

Six Sigma has been applied in

product development, new business acquisition, customer service, accounting, and many other business functions. For example, suppose that a bank tracks the number of errors reported in customers' checking account statements. If it finds 12 errors in 1,000 statements, this is equivalent to an epmo of (12/1,000) × 1,000,000 = 12,000 errors per million, (somewhere between 3.5-and 4-sigma levels).

Many companies use third-party logistics (3PL) providers that

provide integrated services that might include packaging, warehousing, inventory management, and inbound or outbound transportation. 3PLs can leverage business intelligence and analytics to create efficiencies and economies of scale in the supply chain (see the box on Greatwide Logistics Services). Zappos is a good example of using 3PLs for customer deliveries, returns, and some inbound shipping from Asian factories. Toshiba used to have repair locations across the country, while UPS warehoused its parts. UPS suggested that Toshiba move its repair technicians into UPS facilities, which resulted in a 24-hour turnaround for computer repairs. It also saved transportation costs, lowered inventories, and reduced the carbon footprint. 3PLs provide many services that help integrate and coordinate different parts of a supply chain.

The underlying purpose of every organization is to

provide value to its customers and stakeholders.

The Seven QC (Quality Control) Tools support

quality improvement problem-solving efforts.

ISO 9000:2000 defines

quality system standards, based on the premise that certain generic characteristics of management practices can be standardized and that a well-designed, well-implemented, and carefully managed quality system provides confidence that the outputs will meet customer expectations and requirements.

Lean operating systems focus on

quick and efficient response in designing and getting goods and services to market, producing to customer demand and delivery requirements, responding to competitors' actions, collecting payments, and addressing customer inquiries or problems.

The economist Adam Smith, in his 1776 book The Wealth of Nations,

recognized that economic exchange is based on the production of goods that acquire value during design and manufacturing processes. However, he also noted that "real value" is represented by "value in-use"; that is, a good such as a cell phone provides value only when used, and thus reflects the importance of services in a value proposition. The focus on value has forced many traditional goods-producing companies to add services and, increasingly, digital content to their customer benefit packages. If the quality or features of goods cannot be improved at a reasonable cost and prices cannot be lowered, then enhanced or additional services may provide better total value to customers.

Modern firms increasingly deliver goods and services to multiple markets and operate in a global business environment. As a result, many companies have

reconfigured their value chains and moved some operations out of the United States to keep costs competitive, remain profitable, and improve customer service. As one chief financial officer wrote in a CFO Magazine survey, "You cannot compete globally unless you use global resources."2 Thus, we emphasize the importance of understanding the global business environment and local culture, and their impact on value chain design and operations. The complexity of value chains and global operations adds significant pressures to achieve environmental, social, and economic sustainability—concepts we introduced in the previous chapter.

Many suppliers are asked to provide materials on a JIT basis to

reduce inventories. Arriving shipments are sent directly to production. To accomplish this, suppliers often locate their parts warehouses close to final assembly factories. At the other end of the supply chain, distribution centers and retail stores are located close to their customers to speed up delivery.

A JIT system can produce a steady rate of output to meet the sales rate in small, consistent batch sizes to level loads and stabilize the operating system. This dramatically

reduces the inventory required between stages of the production process, thus greatly reducing costs and physical capacity requirements.

Quality management

refers to systematic policies, methods, and procedures used to ensure that goods and services are produced with appropriate levels of quality to meet the needs of customers.

Customer-related measures focus on

the ability of the supply chain to meet customer wants and needs. Customer satisfaction is often measured by a variety of attributes on a perception scale that might range from "Extremely Dissatisfied" to "Extremely Satisfied."

Managing the flow of goods and materials from the customer backward through the supply chain to accomplish manufactured goods recovery is called

reverse logistics.

Push systems work best when

sales patterns are consistent and when there are a small number of distribution centers and products.

16-5a Process Capability Index

see book

Exhibit 15.1 GAP Model of Quality A Conceptual Model of Service Quality and Its Implications for Future Research,"

see book

Exhibit 17.2 A Two-Card Kanban JIT Operating System

see book

Exhibit 9.1 Typical Goods-Producing Supply Chain Structure

see book

Exhibit 9.2 Supply Chain Push-Pull Systems and Boundaries

see book

Exhibit 9.3 Example of a Manufactured Goods Recovery (Reverse Logistics) Supply Chain Example of a Manufactured Good Recovery (Reverse Logistics) Supply Chain," in Martijn Thierry et al., "Strategic Issues in Product Recovery Management," in California Management Review vol. 37, no. 2 (Winter 1995), pp. 114-135. © 1995 by the Regents of the University of California. Reprinted by permission of the University of California Press

see book

Exhibit 9.4 Common Metrics Used to Measure Supply Chain Performance

see book

Exhibit 9.5 Example Location Factors for Site Selection

see book

Some of the characteristics of a well-designed JIT system are summarized in Exhibit 17.3.

see book

16-3a Constructing X ̅-charts and R-Charts

see book (create breakdown of steps VRW)

Location is also critical in service value chains. A great servicescape and facility layout can

seldom overcome a poor location decision, simply because customers may not have convenient access, which is one of the most important requirements for a service facility.

Service Quality: internal focus

service-delivery system performance criteria

Financial measures

show how supply chain performance affects the bottom line. These might include total supply chain costs and costs of processing returns and warranties.

The Seven QC Tools are designed to be

simple and visual so that workers at all levels can use them easily and provide a means of communication that is particularly well suited in group problem-solving efforts.

A control chart is

simply a run chart to which two horizontal lines, called control limits, are added: the upper control limit (UCL) and lower control limit (LCL), as illustrated in Exhibit 15.3. Control limits are chosen statistically so that there is a high probability (generally greater than .99) that points will fall between these limits if the process is in control. Control limits make it easier to interpret patterns in a run chart and draw conclusions about the state of control. The next chapter addresses this topic in much more detail.

Today, the high quality of goods and services is

simply expected by consumers and business customers and is essential to survival and competitive success.

Kaizen focuses on

small, gradual, and frequent improvements over the long term with minimum financial investment and with participation by everyone in the organization.

(SERVQUAL) Reliability is

the ability to provide what was promised, dependably and accurately.

Kaizen focuses on

small, gradual, and frequent improvements over the long term with minimum financial investment and with participation by everyone in the organization. In the kaizen philosophy, improvement in all areas of business—cost, meeting delivery schedules, employee safety and skill development, supplier relations, new product development, or productivity—serve to enhance the quality of the firm. Thus, any activity directed toward improvement falls under the kaizen umbrella.

Differences between Lean and Six Sigma

some differences clearly exist between lean production and Six Sigma. First, they attack different types of problems. Lean production addresses visible problems in processes, for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems, for example, variation in performance. In essence, lean is focused on efficiency by reducing waste and improving process flow, whereas Six Sigma is focused on effectiveness by reducing errors and defects. Another difference is that lean tools are more intuitive and easier to apply by anybody in the workplace, whereas many Six Sigma tools require advanced training and expertise of specialists, particularly in statistical analyses, commonly called Black Belts and Master Black Belts. For example, most workers can easily understand the concept of the 5Ss, but may have more difficulty with statistical methods. Thus, organizations might be well advised to start with basic lean principles and evolve toward more sophisticated Six Sigma approaches. However, it is important to integrate both approaches with a common goal—improving business results. Often Lean Six Sigma is an important part of implementing a strategy built upon sustainability.

If any points fall outside the control limits or if any unusual patterns are observed, then

some special cause has probably affected the process. The process should be studied to determine the cause. If special causes are present, then they are not representative of the true state of statistical control, and the calculations of the center line and control limits will be biased. The corresponding data points should be eliminated, and new values for X ̿, R ̅, and the control limits should be computed.

The cost of quality refers

specifically to the costs associated with avoiding poor quality or those incurred as a result of poor quality.

Supply chains are all about

speed and efficiency; poor supply chain performance can undermine the objectives of the firm and can easily result in loss of customers, either individual consumers or major retailers.

Although supply chains can have a profoundly positive effect on business performance,

supply chain initiatives do not always work out as one would hope. Nike, for example, spent about $500 million on developing a global supply chain over the last couple of decades, and only now is it beginning to reap the benefits of this long and costly supply chain design and improvement initiative.

Sustainability measures show how

supply chain performance affects the environment. These might include recycle versus original product manufacturing costs, water discharge quality, carbon dioxide emissions, and energy reductions. The goal is a carbon-neutral value (supply) chain.

The terms green operations, green manufacturing, and green practices are often used to describe

sustainability activities that involve operations and the value chain.

Lean thinking is playing a large role in

sustainability efforts. Lean thinking helps to drive a culture of waste elimination and environmental sustainability. At a recent conference of the Association for Manufacturing Excellence, Interface Americas, a LaGrange, Georgia, manufacturer of commercial carpet, tile, and Any activity, material, or operation that does not add value in an organization is considered waste.

Specifications are

targets and tolerances determined by designers of goods and services.

Cp values less than 1 mean

that a significant percentage of output (observed variation) will not conform o the design specifications (see Exhibit 16.4a). Note that when Cp = 1, the observed variation is the same as the design specification width, USL-LSL (as in Exhibit 16.4[b]). Values of Cp exceeding 1 indicate good capability (Exhibit 16.4[c]); in fact, many firms require that their suppliers demonstrate a high value of Cp The value of Cp does not depend on the mean of the process; thus, a process may be off-center such as in Exhibit 16.4(d) and still show an acceptable value of Cp. To account for the process centering, one-sided capability indexes are often used: (See book)

Root cause analysis often uses

the Seven QC Tools. For example, Pareto diagrams can also progressively help focus in on root causes. Exhibit 15.8 shows one example. At each step, the Pareto diagram stratifies the data to more detailed levels (or it may require additional data collection), eventually isolating the most significant issue.

Lean concepts were initially developed and implemented by

the Toyota Motor Corporation, and lean operating systems are often benchmarked with "the Toyota Production System (TPS).

Excellent service quality is achieved by

the consistent delivery to the customer of a clearly defined customer benefit package, and associated process and service encounters, defined by many internal and external standards of performance. Performance standards are analogous to manufacturing specifications. For example, "on-time arrival" for an airplane might be specified as within 15 minutes of the scheduled arrival time. The target is the scheduled time, and the tolerance is specified to be 15 minutes.

In determining whether a process is in statistical control, the R-chart is always analyzed first. Because

the control limits in the X ̅-Chart depend on the average range, special causes in the R-chart may produce unusual patterns in the X ̅-chart, even when the centering of the process is in control. For example, a downward trend in the R-chart can cause the data in the X ̅-chart to appear out of control when it really is not. Once statistical control is established for the R-chart, attention may turn to the X ̅-chart.

The Kanban system begins when

the customer buys or uses the good and an empty container is created.

As a firm's product lines and markets change or expand,

the design or redesign of supply chains becomes a critical issue.

Quality of conformance is

the extent to which a process is able to deliver output that conforms to the design specifications.

Supply-Chain Management includes not only the obvious functions of managing materials within the supply chain but also

the flows of information and money that are necessary to coordinate the activities.

If the value ratio is high,

the good or service is perceived favorably by customers, and the organization providing it is more likely to be successful.

Targets are

the ideal values for which production is to strive;

The location of factories, distribution centers, and service facilities establishes

the infrastructure for the supply chain and has a major impact on the profitability.

The location of factories, distribution centers, and service facilities establishes

the infrastructure for the supply chain and has a major impact on the profitability. In today's global business environment with emerging markets and sources of supply in Asia and other countries, identifying the best locations is not easy, but good location analysis can lead to major reductions in total supply chain costs and improvements in customer response.

(SERVQUAL) Assurance is

the knowledge and courtesy of service providers and their ability to convey trust and confidence.

Supply chain management (SCM) is

the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfied customers at reasonable cost.

The Supply Chain Operations Reference (SCOR) model is

the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve satisfied customers at reasonable cost.

OM plays a critical role in achieving environmental, social, and economic sustainability because

the protection of the environment, workforce and community health and safety, and costs and profits are strongly driven by an organization's operations, as well as the life cycles of its products. Every time a good, service, process, or value chain is created or redesigned, OM is involved.

Process capability refers to

the natural variation in a process that results from common causes. Knowing process capability allows one to predict, quantitatively, how well a process will meet specifications and to specify equipment requirements and the level of control necessary. Process capability has no meaning if the process is not in statistical control because special causes will bias the mean or the standard deviation. Therefore, we should use control charts to first eliminate any special causes before computing the process capability.

Supply chains are vital to multisite management, and in each of these cases, it can be difficult to design a good supply chain. Criteria for locating these facilities differ, depending on

the nature of the service. For example, service facilities that customers travel to, such as public libraries and urgent-care facilities, seek to minimize the average or maximum distance or travel time required from among the customer population. For those that travel to customer locations, such as fire stations, the location decision seeks to minimize response time to customers.

A unit of work is

the output of a process or an individual process step.

In Six Sigma, A unit of work is

the output of a process or an individual process step.

Quality at the source means

the people responsible for the work control the quality of their processes by identifying and correcting any defects or errors when they first are recognized or occur.

Quality at the source means

the people responsible for the work control the quality of their processes by identifying and correcting any defects or errors when they first are recognized or occur. This requires that employees have good data collection, observation, and analysis skills, as well as the proper tools, training, and support of management.

Value is

the perception of the benefits associated with a good, service, or bundle of goods and services (i.e., the customer benefit package) in relation to what buyers are willing to pay for them.

A supply chain is

the portion of the value chain that focuses primarily on the physical movement of goods and materials, and supporting flows of information and financial transactions through the supply, production, and distribution processes.

If no special causes affect the output of a process, we say that

the process is in control;

Process capability refers to the natural variation in a process that results from common causes. Knowing process capability allows one to predict, quantitatively, how well a process will meet specifications and to specify equipment requirements and the level of control necessary. Process capability has no meaning if

the process is not in statistical control because special causes will bias the mean or the standard deviation. Therefore, we should use control charts to first eliminate any special causes before computing the process capability.

a high value of Cpu indicates that

the process is very capable of meeting the upper specification

Multisite management is

the process of managing geographically dispersed service-providing facilities.

Value chain integration is

the process of managing information, physical goods, and services to ensure their availability at the right place, at the right time, at the right cost, at the right quantity, and with the highest attention to quality.

Batching is

the process of producing large quantities of items as a group before they are transferred to the next operation.

A green sustainable supply chain can be defined as

the process of using environmentally friendly inputs and transforming these inputs through change agents—whose by-products can improve or be recycled within the existing environment. This process develops outputs that can be reclaimed and re-used at the end of their life-cycle thus, creating a sustainable supply chain. Something as simple as reducing the amount of cardboard or filler by designing "smart packages" can save companies money and reduce landfill waste and energy usage. For example, Dell increased its average truckload from 18,000 to 22,000 pounds and worked with UPS to optimize delivery strategies. 3M developed an innovative system to install adjustable decks in trucks. Placing pallets on two levels allowed one 3M facility to reduce the number of daily truckloads by 40 percent and allowed it to save $110,000 per year.

Many supply chains are combinations of push and pull systems. This can be seen in the simplified version of several supply chains in Exhibit 9.2. The point in the supply chain that separates the push system from the pull system is called

the push-pull boundary . For a company like Dell, the push-pull boundary is very early in the supply chain where suppliers store inventory for frequent deliveries to Dell factories. Dell also ships directly to the customer, skipping the distributors and retailers. General Motors stores finished goods closer to the customer, at dealers. GM pushes finished goods from its factories to the dealer. Dealers might install various options to customize the automobile for the customer. Customers pull the finished goods from the dealer. Thus, the pushpull boundary for General Motors is at the dealers.

There is considerable evidence that investment in quality—not only in goods, services, and processes but in

the quality of management itself—yields numerous benefits.

Single Minute Exchange of Dies (SMED) refers to

the quick setup or changeover of tooling and fixtures in processes so that multiple products in smaller batches can be run on the same equipment.

Control Charts: The control limits represent

the range between which all points are expected to fall if the process is in statistical control.

Value chain processes include

the three types we defined in Chapter 1: 1. value-creation processes (those that directly create and deliver goods and services), 2. support processes (those "behind the scenes," but which support value-creation processes), and 3. general management processes (those that are needed for efficient and effective business performance).

(SERVQUAL) Responsiveness is

the willingness to help customers and provide prompt service.

Pull systems are more effective when

there are • many production facilities, • many points of distribution, and • a large number of products.

The GAP model recognizes that

there are several ways to mismanage the creation and delivery of high levels of quality. These "gaps" are shown in the model in Exhibit 15.1 and explained in the following list.

As companies merge and consolidate,

they face many challenges and must reevaluate their supply chains and locations of facilities.

(SERVQUAL) Tangibles are

what the customer sees, such as physical facilities, equipment, and the appearance of service employees.

Value chain integration in services—where value is in the form of low prices, convenience, and access to special time-sensitive deals and travel packages—takes many forms. For example,

third-party integrators for the leisure and travel industry value chains include Orbitz, Expedia, Priceline, and Travelocity. They manage information to make these value chains more efficient and create value for their customers. Many financial services use information networks provided by third-party information technology integrators such as AT&T, Sprint, IBM, and Verizon to coordinate their value chains. Hospitals also use third-party integrators for both their information and physical goods, such as managing patient billing and hospital inventories.

Prevention costs are

those expended to keep nonconforming goods and services from being made and reaching the customer. They include: 1) quality planning costs such as salaries of individuals associated with quality planning and problem solving teams, the development of new procedures, new equipment design, and reliability studies; 2) process-control costs which include costs spent on analyzing processes and implementing process control plans; 3) information-systems costs which are expended to develop data requirements and measurements; and 4) training and general management costs which include internal and external training programs, clerical staff expenses, and miscellaneous supplies.

Quality must be addressed

throughout the value chain, beginning with suppliers and extending through operations and postsale services.

Raw materials and components are ordered from suppliers and must be

transported to manufacturing facilities for production and assembly into finished goods.

A competitively dominant customer experience is often called a

value proposition.

The essence of Crosby's quality philosophy is embodied in

what he calls the Absolutes of Quality Management and the Basic Elements of Improvement.

Although it is clear that a truly out-of-control process must be corrected, many workers mistakenly believe that

whenever process output is off-target, some adjustment must be made. Actually, over adjusting a process that is in control will increase the variation in the output. Thus, employees must know when to leave a process alone to keep variation at a minimum.

Vendor-managed inventory (VMI) is

where the vendor (a consumer goods manufacturer, for example) monitors and manages inventory for the customer (a grocery store, for example). VMI essentially outsources the inventory management function in supply chains to suppliers. VMI allows the vendor to view inventory needs from the customer's perspective and use this information to optimize its own production operations, better control inventory and capacity, and reduce total supply chain costs. VMI also allows vendors to make production decisions using downstream customer demand data. One disadvantage of VMI is that it does not account for substitutable products from competing manufacturers and often results in higher customer inventories than necessary.

The unique characteristic of SCM is that

whereas material and logistics managers typically focus on activities within the span of their purchasing, manufacturing, and distribution processes, SCM requires a clear understanding of the interactions among all parts of the system. For example, supply chain managers must use forecasting and information technology to better match production levels with demand and reduce costs; tightly integrate design, development, production, delivery, and marketing; and provide more customization to meet increasingly demanding customers. As such, a supply chain is an integrated system and requires much coordination and collaboration among the various players in it.

Deming also advocated a process to guide and motivate improvement activities,

which has become known as the Deming cycle.

With Six Sigma, "There is only one ultimate goal:

zero defects—in everything we do." —Robert Galvin, former Motorola CEO, 1987.

15-2 Influential Leaders in Modern Quality Management

• 15-2a W. Edwards Deming • 15-2b Joseph Juran • 15-2c Philip B. Crosby

Quality Control and SPC: Chapter Objectives Learning Outcomes

• 16-1 Describe quality control systems and key issues in manufacturing and service. • 16-2 Explain types of variation and the role of statistical process control (SPC). • 16-3 Describe how to construct and interpret simple control charts for both continuous and discrete data. • 16-4 Describe practical issues in implementing SPC. • 16-5 Explain process capability and calculate process capability indexes.

Chapter 17:Lean Operating Systems Lean Operating Systems: Chapter Objectives

• 17-1 Explain the four principles of lean operating systems. • 17-2 Describe the basic lean tools and approaches. • 17-3 Explain the concept of Lean Six Sigma and how it is applied to improving operations performance. • 17-4 Explain how lean principles are used in manufacturing and service organizations. • 17-5 Describe the concepts and philosophy of just-in-time operating systems.

Exhibit 17.1 Common Examples of Waste in Organizations

• Excess capacity • Inaccurate information • Clutter • Planned product obsolescence • Excessive material handling • Overproduction • Producing too early • Long distance travelled • Retraining and relearning time and expense • Excess inventory • Long changeover and setup times • Scrap • Rework and repair • Long, unproductive meetings • Poor communication • Waiting time • Accidents • Too much space • Spoilage • Excessive energy use • Unnecessary movement of materials, people, and information • Equipment breakdowns • Knowledge bottlenecks • Non-value-added process steps • Misrouting jobs • Wrong transportation mode

Reverse logistics includes the following activities:

• Logistics: authorizing returns, receiving, sorting, testing, refurbishing, cannibalizing, repairing, remanufacturing, recycling, restocking, reshipping, and disposing of materials. • Marketing/Sales: remarketing and selling the recovered good for reuse or resale to wholesalers and retailers. • Accounting/Finance: approving warranty repairs, tracking reverse logistic revenue and costs, billing, and paying appropriate suppliers and third-party vendors. • Call Center Service: managing service center calls all along the supply chain to coordinate work activities such as collecting items from many diverse sources for recovery operations. • Legal/Regulatory Compliance: constantly monitoring compliance with local, state, federal, and country laws, import and export regulations including environmental, and service contract commitments.

Specific operational and financial results that Baldrige recipients have achieved include the following:

• Nestlé Purina PetCare Co. (NPPC) manufactures, markets, and distributes pet food and snacks for dogs and cats, as well as cat litter. NPPC ranks first in market share for pet-care products in North America, has twice the market share of its closest competitor, and has grown its market share by almost 10 percent over 10 years in a mature industry. It is also recognized as best in the industry for its outstanding safety performance. • K&N Management is the licensed Austin, Texas-area developer for Rudy's "Country Store" & Bar-B-Q and the creator of Mighty Fine Burgers, Fries and Shakes, two fast-casual restaurant concepts. Guests rate their satisfaction with food quality, hospitality, cleanliness, and speed of service; overall customer satisfaction outperforms the best competitor. In 2010, the firm was named "the best place to work in Austin." • Advocate Good Samaritan Hospital is an acutecare medical facility in Downers Grove, Illinois. Overall patient satisfaction levels for outpatient, emergency, ambulatory surgery, and convenient care exceed the top 10 percent nationally. Good Samaritan Hospital used Six Sigma methodology to pioneer improvement of "door-to-balloon" time, the critical period for assessing and diagnosing a heart attack and delivering the needed intervention, lowering the measure to 52 minutes, among the best in Illinois.

The last bullet point in the previous section is especially important to today's focus on sustainability. Many companies are developing options to recover manufactured goods that may be discarded or otherwise unusable. This is often called manufactured goods recovery, and consists of one or more of the following:

• Reuse or resell the equipment and its various component parts directly to customers once the original manufactured good is discarded. Furniture, appliances, and clothes are examples of the reuse and resell recovery option. • Repair a manufactured good by replacing broken parts so it operates as required. Personal computers, vehicle parts, and shoes are examples of physical goods that may need to be repaired. • Refurbish a manufactured good by updating its looks and/or components—for example, cleaning, painting, or perhaps replacing parts that are near failure. Products may have scratches, dents, or other forms of "cosmetic damage" that do not affect the performance of the unit. Refurbished products cannot be sold as new in the United States, which is why they are relabeled as refurbished or refreshed units even if they are good-as-new. Often the equipment is returned to the manufacturer, which then fixes and certifies the unit and sells it at a discount. • Remanufacture a good by completely disassembling it and repairing or replacing worn out or obsolete components and modules. Honda, for example, remanufactures vehicle steering mechanism controls for sale as dealer-authorized replacement parts with the same warranty as new parts. • Cannibalize parts for use and repair of other equipment of the same kind, such as automobiles, locomotives, and airplanes. Cannibalization can normally occur only with equipment that uses interchangeable parts, such as with automobiles and airplanes. • Recycle goods by disassembling them and selling the parts or scrap materials to other suppliers. Aluminum soda cans, for example, are often melted and formed into new aluminum sheets and cans. • Incineration or landfill disposal of goods that are not economical to repair, refurbish, remanufacture, or recycle.

Exhibit 17.3 Example JIT Characteristics and Best Practices

• Setup/changeover time minimized • Excellent preventive maintenance • Mistake-proof job and process design • Stable, level, repetitive master production schedule • Phantom bill of materials with zero lead time • Fast processing times • Clean and uncluttered workspaces • Very little inventory to hide problems and inefficiencies • Use production cells with no wasted motion • May freeze the master production schedule • Use reusable containers • Outstanding communication and information sharing • Keep it simple and use visual controls • High quality approaching zero defects • Small repetitive order/lot sizes • Minimize the number of parts/items • Minimize the number of bill of materials levels • Facility layout that supports continuous or single-piece flow • Minimize distance traveled and handling • Clearly defined performance metrics • Minimize the number of production, inventory, and accounting transactions • Good calibration of all gauges and testing equipment • Employees trained in quality management concepts and tools • Excellent employee recognition and reward systems • Employee cross-training and multiple skills Empowered and disciplined employees

Other environmental-performance-enhancing supply chain management activities include the following:

• Substantially decreasing scrap, packaging, and material losses • Adopting paperless practices for all information processing, such as billing and purchasing • Lowering the training, material handling, and other extra expenses associated with hazardous materials • Increasing revenues by converting wastes to by-products • Reducing water and energy requirements throughout the supply chain • Decreasing the use and waste of solvents, paints, cleaning fluids, and other chemicals through better product, process, and job design • Selecting suppliers that support sustainability. Ms. Berger, cited earlier, suggests the following questions for original equipment manufacturers (OEMs) to ask when seeking good suppliers: Does the supplier publish an annual sustainability report? How does the OEM evaluate suppliers on sustainability performance criteria? How does the supplier ensure that its processes are free from environmentally harmful pollutants? How does the supplier plan for and handle its product's end-of life reclamation? • Recovering valuable materials and assets through efficient product take-back and recycle programs.

Typical questions that are asked in a process capability study are the following:

• Where is the process centered? • How much variability exists in the process? • Is the performance relative to specifications acceptable? • What proportion of output will be expected to meet specifications?

Outsourcing to contract manufacturers can offer significant competitive advantages, such as

• access to advanced manufacturing technologies, • faster product time-to-market, • customization of goods in regional markets, and • lower total costs resulting from economies of scale.

In designing an efficient supply chain, for example, an organization would seek to

• balance capacity and demand, resulting in low levels of inventory; • might use only a few large distribution centers (as opposed to small ones) to generate economies of scale; and • use optimization models that minimize costs of routing products from factory through distribution centers to retail stores and customers. Examples of companies that run efficient supply chains are Procter & Gamble and Walmart.

Responsive Supply Chains (A focus on flexibility and response) is best when

• demand is unpredictable; • product life cycles are short and change often because of product innovations; • fast response is the main competitive priority; • customers require customization; and • contribution margins are high.

The concepts and methods used in Six Sigma efforts have been around for a long time and may be categorized into seven general groups:

• elementary statistical tools (basic statistics, statistical thinking, hypothesis testing, correlation, simple regression); • advanced statistical tools (design of experiments, analysis of variance, multiple regression); • product design and reliability (quality function deployment, reliability analysis, failure mode, and effects analysis); • measurement (cost of quality, process capability, measurement systems analysis); • process control (control plans, statistical process control, reducing variation); • process improvement (process improvement planning, process mapping, mistake-proofing); and • implementation and teamwork (organizational effectiveness, team assessment, facilitation tools, team development).

A push system has several advantages, such as

• immediate availability of goods to customers and • the ability to reduce transportation costs by using full-truckload shipments to move goods to distribution centers.

The key functions of a Supply Chain generally include:

• purchasing and procurement of materials and supplies, • sales and order processing, • operations, • inventory and materials management, • transportation and distribution, • information management, • finance, and • customer service.

A goods-producing supply chain generally consists of

• suppliers, - Raw Materials • manufacturers, - Finished Goods • distributors, • retailers, and • customers arranged in a hierarchical structure, as illustrated in Exhibit 9.1.

In making global value chain decisions, managers must ask and answer some difficult questions.12 For example,

• why go global? Is it to sell products and services to the local market, to export products to other markets, or to source materials, components, labor, or knowledge? • Do customers require a presence in these markets? • What are different global customer and market segments? • Are there key competitors in these regions? • Which functions (sales, engineering, manufacturing, purchasing, finance, etc.) need to be present in the region? • What is the best way to organize our presence in the region (facilities, joint ventures, alliances, licensing arrangements, etc.)? • How will we enter the region? • How long will it take to be operational? • Who will do the globalization work in our company? • How much travel are they willing to do, and for how long? • Are core staff willing to relocate? • Do local suppliers and governments support sustainability initiatives? • What is our disaster management plan?

In a JIT process, the customer cycle

• withdraws what is needed at the time it is needed according to sales. • The supply cycle creates the good to replenish only what has been withdrawn by the customer. • The storage area is the interface and control point between the customer and supply cycles.

Complex global value chains are more difficult to manage than small domestic value chains. Some of the many issues include the following:

● Global value chains face higher levels of risk and uncertainty, requiring more inventory and day-to-day monitoring to prevent product shortages. Workforce disruptions such as labor strikes and government turmoil in foreign countries can create inventory shortages and disrupting surges in orders. ● Transportation is more complex in global value chains. For example, tracing global shipments normally involves more than one mode of transportation and foreign company. Even a natural disaster can create havoc in a global supply chain (see the box about the Japanese earthquake). ● The transportation infrastructure may vary considerably in foreign countries. The coast of China, for example, enjoys much better transportation, distribution, and retail infrastructures than the vast interior of the country. ● Global purchasing can be a difficult process to manage when sources of supply, regional economies, and even governments change. Daily changes in international currencies necessitate careful planning and in the case of commodities, consideration of futures contracts. ● International purchasing can lead to disputes and legal challenges relating to such things as price fixing, nongreen practices, and quality defects. International quality, cost, and delivery disputes have few legal options, and therefore it is imperative that global supplier relationships are well established. ● To extend the firm's value chain to other nations requires an understanding of national cultures and practices. For example, because Chinese words are pictures, the Chinese think more in terms of holistic thoughts and process information emphasizing the big picture over details. Americans think sequentially, focus on details, and individualistically. They break complex situations into a series of smaller issues such as delivery dates, price, and quantity. Such differences can cause confusion, or at worst, ill-will among the constituents.11 ● Privatizing companies and property is another form of major change in global trade and regulatory issues. Eastern European nations, China, Brazil, and Russia are other countries initiating private ownership of assets such as land, equipment, and businesses. This privatization movement also helps improve the efficiency and effectiveness of global supply chains. ● The pre-planning, response, and recovery from natural or man-made disasters, often called disaster or emergency management, is another important part of value chain management. When disasters occur, such as earthquakes, tsunamis, volcanoes, chemical spills, droughts, airplane crashes, or terrorist attacks, organizations or governments worldwide must respond. An organization or government's response to a disaster is only as good as its value chain operations and logistic (supply chain) capability (see the boxes on Japanese earthquake and the Iceland volcano).