Chapter 8 SCM Operations Mngmt. w/ LEAN & Six Sigma

Benefits of LEAN waste reduction

-1-10% of the process steps or activities are value added -lean reduces waste activities (non-value added)

Lean History

-1910's, Henry Ford's mass production line was a first breakthrough by using continuous assembly systems that made parts find their way into finished products assembly line vid -1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and other techniques to form the basis of what is now known as LEAN. -The term LEAN was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World.

Pull Approach

-Each stage in the supply chain requests quantities needed from the previous stage. -No excess inventory is generated. -Reducing inventory levels can also uncover production problem.

Respect for people

-Flatter hierarchy than traditional organizations. -Ordinary workers given greater responsibility. -Supply chain members work together in cross functional teams.

non-value added process

Process steps that take time, resources, or space, but do not transform or shape the product or service.

Value added process

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

Traditional Approach

SC is a "push" system and inventory is carried to cover up problems

Flow Diagram

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

Nature of how OM is carried out

VARIES BY CO. and depends on the nature of the products/services in the portfolio

The VOC can be captured in a variety of ways

Customer Interviews Market Surveys Focus Groups Customer Specifications Observation Warranty Data Field Reports Complaint Logs

SS key methodologies

DMADV: create a new product design or business process DMAIC: improve an existing product or business process

Workforce Commitment

Managers must support LEAN Manufacturing by providing subordinates with the skills, tools, time, and other necessary resources to identify problems and implement solutions

Kaoru Ishikawa

developed one the first tools in the quality management process, the cause and effect diagram, which is also called the "Ishikawa" or "fishbone" diagram.

Goal of lean:

elimination of waste and the minimization of the amount of all resources used in the operation of a company

Large Batches

exacerbate the bullwhip effect as production in large batches creates uneven workload -production is not synchronized with customer demand, making a pull system impossible

Pareto Analysis

for presenting data in an organized fashion, indicating process problems from most to least severe

reducing inventory

frees up capital and reduces holding costs -less likelihood of waste being created by obsolesce, expiry, spoilage, or damage with lower inv. levels

Role of workers, management, and suppliers

goal is NOT to reduce # of people in an org., it is to use people supplies more wisely

Control Charts *

graph to study how a process changes over time

Histograms

graphical display where the data is grouped into ranges

ATO is a

hybrid strategy, attempting to combine benefits of MTO and MTS strategies, getting products into customers' hands quickly while allowing for some customization to take place.

LEAN SC Relationships

with key customers and suppliers ideal relationship: both c and s get connected and exchange info, demand data, and visibility of status -there is mutual dependency and benefits for both -s and c remove waste, reduce cost, and improve quality and cust. service

Waste Categories

"DOWNTIME" Defects Overproductions waiting non-utilized talent transportation motion/movement extra processing

Protect Process:

"job shop" creates a custom product for each customer -high product variety -low volume -ETO/MTO -customer lead time is long

manufacturing cells

(i.e. sandwich shop) process similar parts/components saving duplication of equipment and labor often u-shaped to facilitate operator and material movements

challenge of MTS

-avoid having excess inventory -co. that use MTS hold more inventory just in case they need it, so they struggle to ensure that inventory levels do not get out of control

LEAN and Six Sigma are

-completementary principles w/ significant overlap -frequently implemented together

The Five S's/five pillars of the visual workplace

-originally japanese words relating to industrial housekeeping 1. sort 2. straighten 3. shine 4. standardize 5.sustain systematic process of workplace organization

Small Batch Scheduling and Uniform Plant Loading

-produce every product as quick as possible at same rate as cust. demand

problems of MTO

-relieves the problems of excessive inventory (not like MTS) -not appropriate for all types of products -for highly configured products like aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory

Six Sigma uses technical tools such as:

-root cause analysis -statistical process control -DMAIC

5 How's and Why's

-up the ladder "why" -down the ladder "how" -used in conjunction with the causes and effect diagram

LEAN Green Practices

1. Reduce cost of environmental management 2. improved environmental performance 3. Increase the possibility that firms will adopt more advanced environmental management 4. carbon neutral: offsetting the carbon footprint of a firm's operations

components of lean manufacturing

1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time, & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement

Major manufacturing strategies (4)

1. make to stock (MTS) 2. make to order (MTO) 3. assemble to order (ATO) 4. engineer to order (ETO)

TCM includes:

1.Manufacturing and procurement_activities 2.Inventory and warehousing activities 3.transportation activities

As volume goes up

A. manufacturing and procurement costs go down due to economies of scale B. inventory and warehousing costs go up C. transportation costs go down but level off at high volumes as shipping container gets filled to capacity and another container must be used

Problem of Uniform Front Loading

Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including excess inventory or shortage of inventory very inefficient use of resources

Kaoru Ishikawa

Developed cause-and-effect diagrams -aka "ishikawa" or "fishbone" diagram -user can see all possible causes of a problem to find root cause -known as father of quality circles -proponent of continuous customer service (continue getting service even after product)

Waste Reduction

Firms reduce costs and add value by eliminating waste from the production system. -Waste encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity. BEFORE: waste is removed, processes are often scattered, which can negatively affect your customers AFTER:waste is removed, processes are more streamlined, resulting in more satisfied customers. You'll also save your organization time and money

six sigma became famous when

Jack Welch made it mental to his successful business strategy at gneral electric in 1995 -200MM in savings first year

Continuous Improvement Kaizen

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

Small Batch Scheduling

LEAN M. attempts to reverse this through small batches bc smaller batches will produce at same rate as customer demand -smooth world load = pull system -increases flexibility -throughput times in manufacturing go down

Role of workers:

Perform tasks and actively pursuing company goals: Improve production process Correct quality problems Monitor quality Work in Teams (i.e., Quality Circles)

Inventory, Setup Time, & Changeover Time Reduction

Some inventory may be necessary, but excess inventory is a waste takes up space costs money ties up financial capital

Voice of the Customer (VOC)

Term used in business to describe the in-depth process of capturing internal and external customers's expectations preferences, likes, and dislikes data is used to identify this quality attributes needed for a process or product

Buyer's risks:

The buyer accepts a shipment of poor-quality units because the sample falsely provides a positive result against the acceptance standard (type II error)

Supplier's risks

The buyer rejects a shipment of good-quality units because the sample quality level did not meet the acceptance standard (type I error)

Total Quality Management (TQM)

a management philosophy based on the principle that every employee must be committed to maintaining high standards of work in every aspect of a co. operations combo of quality and management tools to inc. business and reduce losses from wasteful practices

Efficient Consumer Response (ECR)

a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.

Just in Time (JIT)

an inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs.

Cost of quality

approach that supports a co. efforts to determine the level of resources necessary to PREVENT POOR QUALITY and to evaluate the quality of the co. products and services -costs that do not normally occur contribute to COQ -determine benefits and savings generated by potential process improvements

Most successful implementations

begin with LEAN followed by more technical Six Sigma statistical tools used to resolve process problems

Manufacturing strategies

co. must develop a MS that suits the type(s) of products that they produce, their customer's expectations, and their strengths -vary depending on product/customer requirements -developing a MS that suits a co.'s strengths is essential for establishing and maintaining an effective supply chain

Philip Crosby

coined the phrase "quality is free" (which is also the title of his book) as defects are costly. He introduced the concepts of zero defects, andfocus on prevention and not inspection.

Lean and Six Sigma

complement eachother create speed and accuracy

Total Cost of Manufacturing (TCM)

complete cost of producing and delivering products to your customers -incorporates both fixed and variable costs used in manufacturing, storage, and delivery of product -expressed as COST PER UNIT

Setup Time and Changeover Time

considered a waste as they are times when the equipment is not performing its intended function . . . . producing product. While setting up the equipment is a necessary function, if the set up time can be minimized, the difference will be more time available to produce. -Both are non-value added operations and should be minimized as much as possible.

COQ can be divided into the:

cost of good quality: a. appraisal costs b. prevention costs cost of poor quality: a. internal failure costs b. external failure costs

Appraisal Costs

costs associated with the evaluation of purchased materials, processes, products, and services to ensure that they confirm to specifications include costs like: -evaluating, assessment, audits

Role of management

create cultural change needed for LEAN to succeed -atomospohere of cooperation -empower workers to take action based on their ideas -reward lean behaviors

Joseph Juran

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

Uniform Plan Loading

i.e. level loading the plan -planning up to capacity in earlier time periods to meet demand in time time periods -aka "front loading" the plan or "leveling" -production schedule is frozen in the up-front time period (i.e. month) -helps suppliers better plan production

Value

inherent worth of a product as judged by the customer, and reflected in its selling price and market demand.

Keiretsu relationships

involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit

Six Sigma

is a disciplined, statistical-based, data-driven methodology for identifying and removing the causes of defects(errors) and minimizing variability in manufacturing and in business processes. It was originally developed by Motorola.

MTO

is a manufacturing strategy in which manufacturing starts only after a customer's order is received -creates additional wait time for the customer to receive the product, but allows customers to purchase products that are customized to their specifications

W. Edwards Deming

is widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model.

lean results in

large cost reductions improved quality inc. cust. service

malcom baldric national quality award measured

leadership strategic planning customer and market focus information and analysis human resource focus process management business results

malcom baldric national quality award: categories measured

leadership, strategic planning, customer and market focus, information and analysis, HR focus, process mngmt., business results

role of supplier

lean involves building long term supplier relationships partnerships with s improving process qual. sharing info goal: have fewest number of high quality s. as possible w/o inc. risk

Components of lean (work in unison)

lean manufacturing total quality management respect for people

sampling

less time consuming thant testing every unit but can result in errors: -supplier's risks -buyer's risks

principles of TQM

management commitment employee empowerment fact based decision making continuous development customer focus

Batch Process

manufactures a small quantity of an item in a single production run (i.e. epi pen) -high variety -low volume -MTO/ATO/MTS -long customer lead time

ETO

manufacturing strategy in which the product is designed, engineered, and built to the customer's specifications after receipt of the order. -more dramatic evolution of MTO strat -involves building a unique product every time. finished product always different

ATO

manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent. -requires basic parts for product are already manufactured but not assembled -once order received -> parts assembled quickly into finished prod. and sent to customer

MTS

means to manufacture products for stock based on demand forecasts -push system -how do you forecast accurately (problem) -i.e. daily necessities like food, sundries, and textiles

components of LEAN manufacturing

move people and materials when and where needed ASAP -visual with operators at one processing center able to monitor work at another -manufacturing cells

lean manufacturing

natural fit within the discipline of Supply Chain Management as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain. i.e. customer demand, demand forecasts/production, moving products, optimization, cross-training, collaboration to 2nd and 3rd tier suppliers/customers

Manufacturing Processes

need to develop process that can create exact product that been designed -manufacturing processes have certain characteristics in common: intermittent processes and repetitive processes

Malcolm baldric national quality award

objectives: -stimulate firms to improve -recognize firms for quality achievements -establish guidelines so that organizations can evaluate their improvement and provide guidance to other

Internal Failure Costs

occur when the product or service does not meet the designed quality standards, and are identified before the product or service is delivered to the customer They include costs for: -defective product that cannot be used/sold/repaired, establish root causes of product

external failure costs:

occur when the product or service does not meet the designed quality standards, but is not detected until after the product or service is delivered to the customer include costs for: responding to customer complains, replacements, returned products, investigation of rejected/recalled products

Lean

operating philosophy of waste reduction and value enhancement. It was originally created as the Toyota Production System (TPS) by key Toyota executives.

LEAN is NOT a toolbox of methods, ideas or methodologiesm it is

philosophy/culture

six sigma methodology

quality defined by customer use of technical skills (SS concerned with the permanent fix to quality problems and seeks to identify/correct the root causes of the problem) people involvement

six sigma

quality mngmt process -improve process outputs by identifying and removing causes of defects (errors) and minimizing variability in manufacturing and business processes -goal: less than 3.4 defects per million oppurtunties (DMPO)

joseph jura (3Q's)

quality planning quality control quality improvement

5 How's Technique

questioning technique for drilling down intro the details of a potential SOLUTION to a known problem -designed to bring clarity/refinement to a solution and arrive the ROOT SOLUTION (best solution) -useful method of brainstorming

5 Why's Technique

questioning technique for identifying the root cause of a problem that helps find where change is needed -"analyze" phase of six sigma DMAIC methodology

in 1990's SCM combined

quick response efficient consumer response (ECR) just in time (JIT) keiretsu relationships -combination of concepts emerged as philosophies and practices known as LEAN manufacturing

reducing wastes results in:

reduced cycle times greater throughput better productivity improved quality reduced costs all can improve customer. satisfaction and provide co. w/ a comp. advantage

Operations Management

refers to managing the process to convert resources into G/S, in alignment with the co.'s business strat as efficiently/effectively as possible, which also controlling costs

Prevention Costs

related to the design, implementation, and maintenance of the quality management system. They are planned, and experienced before actual products or materials are acquired or produced. include costs for: -specifications for incoming materials/processes/services, quality plans, preparation, maintenance

how does lean achieve its goals?

sing less technical tools such as value stream, mapping, LEAN layouts, continuous improvement, and respect for people

zero defects

six sigma is a structured and data driven approach to drive a near perfect quality goal

Kanban

small batch scheduling is facilitated using this -"signal" or "card" for communication between workstations (visual signal) -use a computer software program (ERP sys.)

Line Process

standard products with a limited number of variations moving on an assembly line through stages of production -limited product variety -high volume -ATO/MTS -short customer lead time

Lead Time

the choice of strategy determines which performance cycle the customer experiences

in the ETO world

the cost of poor quality can be very high. —The warranty costs, and the cost of rework to replace an item in a complex assembly, can have a serious negative effect on profit margins.

manufacturing management

the management of all the processes which are involved in manufacturing

Quick Response

the rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale.

Changeover Time

the time taken to adapt and modify_the manufacturing equipment and systems to produce a different product or a new batch of the same product.

Scatter Diagrams

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

SetupTime

time taken to prepare and format the manufacturing equipment and systems for production.

Manufacturing

to process or make RAW MATERIALS OR COMPONENTS INTO A FINISHED PRODUCT, especially by means of large-scale industrial operation (i.e. mass production) -raw materials -> finished goods -uses machines, personnel, inventory handling, and warehousing

quality tools (statistical tools)

used by workers to identify and correct quality problems 1. check sheets 2. histograms 3. pareto analysis 4. causes and effect diagrams 5. flow diagram 6. control charts 7. scatter diagrams

Cause and Effect Diagrams

used to aid in brainstorming and isolating the causes of a problem

check sheets

used to determine frequencies for a specific problems

Continuous Process

used to manufacture such items as gasoline, laundry detergent and chemicals. inflexible processes. high capital investment -very limited product variety -very high volume -MTS -very short customer leader time

Intermittent Processes

used to produce a large variety of products with different processing requirements in lower volumes. -uses project process and batch process

Repetitive Processes

used to produce one, or a few, standardized products in high volumes -used line process and continuous process

Acceptance Sampling

when a shipment is received from a supplier, a selection of a set of items from a product lot is taken and measured against the quality acceptance standard entire shipment = same quality as representative sample