Chapter 8
Traditional Approach:
Supply chains work as "push" systems Inventory carried to cover up problems
Six Sigma History
Six Sigma became famous when Jack Welch made it central to his successful business strategy at General Electric in 1995 Reported $200MM in savings in the first year of implementation (1996)
What is Six Sigma goals
Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes.
What is Six Sigma?
Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes.
Logistics: for lean six sigma
Optimization models to select routes. Warehouse design changes reduce waste.
Make-to-Stock (MTS)
literally means to manufacture products for stock based on demand forecasts, which is a push system.
Make-to-Order (MTO)
relieves the problems of excessive inventory that is common with the traditional Make-to-Stock strategy
Six Sigma History
Originated by Motorola in 1979 "The real problem at Motorola is that our quality stinks!" Art Sundry, Sales Leader, boldly stated at annual sales meeting In the early to mid-1980's, Motorola developed the new standard and created the methodology $20MM in savings for Motorola's pager production line Also a change in mindset (Cost of Poor Quality) and culture
Uniform Plant Loading:
Planning up to capacity in earlier time periods to meet demand in later time periods. Also called "front-loading" the plan or "leveling" the plan. Production schedule is frozen in the up-front time period (i.e., month) Helps suppliers better plan production.
Value Added Process
Process steps that transform or shape a product or service which is eventually sold to a customer.
Make-to-Stock (MTS)
Since accuracy of the forecasts will prevent excess inventory and opportunity loss due to stockout, the critical issue is how to forecast demands accurately.
Statistical Process Control Allows firms to:
Visually monitor process performance Compare the performance to desired levels or standards Take corrective action
Acceptance Sampling
When shipments are received from suppliers, samples are taken and measured against the quality acceptance standard. Shipment is assumed to have the same quality. Sampling is less time-consuming than testing every unit but can result in errors
Assemble-to-Order (ATO)
a hybrid strategy between a Make-to-Stock strategy where products are fully produced in advance, and the Make-to-Order strategy where products are manufactured once the order has been received.
Engineer-to-Order (ETO)
a manufacturing process in which the component is designed, engineered, and built to specifications only after the order has been received
LEAN
an operating philosophy of waste reduction and value enhancement and was originally created as the Toyota Production System (TPS) by key Toyota executives.
Flow Diagrams
annotated boxes representing process to show the flow of products or customers
Joseph Juran
-Quality Planning, identify internal / external customers & needs: Develop products satisfying those needs. Mangers set goals, priorities, and compare results. -Quality Control and determine what to control: Establish standards of performance. Measure performance, interpret the difference, take action. -Quality Improvement, show need for improvement: Identify projects for improvement. Implement remedies Provide control to maintain improvement.
The Seven Elements of LEAN Manufacturing
Waste Reduction LEAN Supply Chain Relationships LEAN Layouts Inventory and Setup Time Reduction Small Batch Scheduling Continuous Improvement Workforce Empowerment
Assemble-to-Order (ATO)
a manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent
Make-to-Stock (MTS)
a train schedule (supply schedule) for which the number of passengers (forecast demand) for each time period can be determined from the past data. Most daily necessities such as processed foods, sundries, and textiles are MTS-type products.
Six Sigma
an enterprise and supply chain-wide philosophy that emphasizes a commitment toward excellence and encompasses suppliers, employees, and customers
Make to Order (MTO)
relies on relatively small quantities, but more complexity
Assemble-to-Order (ATO)
requires that the basic parts for the product are already manufactured but not yet assembled
Respect for all people must exist for an organization to be at its best
Flatter hierarchy than traditional organizations. Ordinary workers given great responsibility. Supply chain members work together in cross functional teams.
Total Cost of Manufacturing (TCM)
It includes all costs associated with: Production and procurement activities Inventory and warehousing activities Transportation activities
Total Cost of Manufacturing (TCM)
It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product
Make-to-Order (MTO)
It is like an elevator because MTO starts by receiving an order as an elevator starts by pressing a button
Steps: for LEAN six sigma supply chian
Jointly Define Value. Conduct Supply Chain Capability Analysis. Develop Key Financial and Operational Metrics. Identify and Implement System Improvements. Value Stream Mapping (VSM
Role of Supplier
LEAN builds long-term supplier relationships:
LEAN and Six Sigma complement one another;
LEAN focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations
Malcolm Baldrige National Quality Award Categories Measured
Leadership Strategic Planning Customer and Market Focus Information and Analysis Human Resource Focus Process Management Business Results
LEAN builds long-term supplier relationships:
Partner with suppliers. Improve process quality. Information sharing. Goal to have single-source suppliers.
Non-Value Added Process
Process steps that take time, resources, or space, but do not add value to the product or service
What is Six Sigma?
A quality management process:
(1) Waste (Muda) Reduction
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
Consumer's risk:
Buyer accepts a shipment of poor-quality units because the sample falsely provides a positive answer (type II error)
Uniform Plant Loading Problem:
Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste
Pull Approach:
Each stage in the supply chain requests quantities needed from the previous stage. No excess inventory generated. Reduced inventory exposes problems
(1) Waste (Muda) 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.
Tools to help determine customer wants:
Focus groups Market surveys Customer interviews
Philip Crosby
Four Absolutes of Quality
Visual signals. Communication between workstations
Kanban: "Signal" or "Card" in Japanese. Contains information passed between stations. Authorizes production or the movement of materials to the next workstation.
LEAN
LEAN Manufacturing Total Quality Management Respect for People
LEAN Green Practices
Reduce the cost of environmental management Lead to improved environmental performance. Increase the possibility that firms will adopt more advanced environmental management
Reducing wastes consequently results in:
Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs
Engineer-to-Order (ETO)
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.
Engineer-to-Order (ETO)
There may be components that are common from one product to another, but not in the same quantity as in repetitive manufacturing
LEAN History
These approaches have emerged as philosophies and practices known as LEAN Manufacturing (or LEAN Production) and Six Sigma
Quality is meeting or exceeding customer expectations
Tools to help determine customer wants:
The Pull System
Traditional Approach: Pull Approach:
Six Sigma Methodology
Two Aspects: 1. Use of technical tools Statistical quality control. Seven tools of quality. 2.People involvement: All employees responsible to identify quality problems. All employees trained to use technical tools.
Non-Utilized Talent
Underutilizing people's talents, skills or knowledge. De-motivating the workforce by not asking for input or recognizing success
Workers performing different tasks and actively pursuing company goals:
Worker duties: Improve production process Correct quality problems Monitor quality Work in Teams: Quality circles
Check Sheets
- to determine frequencies for specific problems.
Engineer-to-Order (ETO)
building a unique product every time.
Producer's risk:
A buyer rejects a shipment of good quality units because the sample quality level did not meet standards (type I error)
LEAN History
In the 1990s, supply chain management combined: Quick Response (QR) - speed and flexibility Efficient Consumer Response (ECR) - speed and flexibility Just-in-Time (JIT) - Continuous reduction of waste Keiretsu Relationships - Including suppliers in JIT/TQM efforts
LEAN History
Starting 1910's, Henry Ford's mass production line was a first breakthrough by using continuous assembly and flow systems that made parts find their way into finished products Video: Ford Model T - 100 Years Later (5 mins) In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system and other techniques to form the basis of what is now known as LEAN. The term LEAN was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, The Machine that Changed the World
Use of technical tools
Statistical quality control. Seven tools of quality.
Malcolm Baldrige 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 others
(2) LEAN Supply Chain Relationships
Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities Firms develop lean supply chain relationships with key customers. Mutual dependency and benefits occur among these partners.
Four Absolutes of Quality
The definition of quality is conformance to requirements The system of quality is prevention. Performance standard is zero defects. The measure of quality is the price of nonconformance
The Role of Workers, Management, and Suppliers
The goal is NOT to reduce the number of people in an organization, it is to use people resources more wisely.
Assemble-to-Order (ATO)
attempts to combine the benefits of both strategies - getting products into customers' hands quickly while allowing for the product to be customizable
Transportation
Unnecessary movement of materials or products
Motion
Unnecessary movement of people. Multiple hand-offs
Extra-Processing
Unnecessary steps in a process. Redundancies between processes. More work or higher quality than required by the customer
Make-to-Order (MTO)
a manufacturing strategy that typically allows customers to purchase products that are customized to their specifications.
Engineer-to-Order (ETO)
a more dramatic evolution of a Make-to-Order supply chain
One issue of MTS is
to avoid having excess inventory. Companies today that operate with an MTS model struggle to make the correct product at the correct time in the correct quantities.
Cause and Effect Diagrams (Fishbone or Ishikawa diagrams
used to aid in brainstorming and isolating the causes of a problem.
Engineer to Order (ETO)
used when products are unique and extensively customized for the specific needs of individual customers
Assemble to Order (ATO)
when base components are made, stocked to forecast, but products are not assembled until customer order is received
defects
Anything that does not meet the acceptance criteria
People involvement:
All employees responsible to identify quality problems. All employees trained to use technical tools.
Total Quality Management
An integrated organizational effort to improve quality at every level: Quality Gurus Voice of the Customer Costs of Quality Quality Tools ISO 9000
Seven Tools of Quality Control:
Cause and Effect Diagrams (aka root cause analysis) Flowcharts Checklists Control Charts Scatter Diagrams Pareto Analysis Histograms
(6) Continuous Improvement (Kaizen)
Continuous approach to reduce process, delivery, and quality problems, such as machine breakdown problems, setup problems, and internal quality problems
role of mgmt
Create cultural change needed for LEAN to succeed
Waiting
Elapsed time between processes when no work is being done
4) Inventory and Setup Time Reduction
Excess inventory is a waste Reducing inventory levels can uncover production problems Once problems are detected, they can be solved. The end result is a smoother running organization with less inventory investment.
Inventory
Excess products or materials not being processed
Manufacturing Strategies
In this section we will review the manufacturing strategies: Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO) We will also review the implications to customer delivery lead time with each of these manufacturing strategies
suppliers for lean six sigma
Lower costs due to efficient systems. Shorter lead times. Lower safety stock.
7) 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
(3) LEAN Layouts
Move people and materials when and where needed, and as soon as possible Are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another Manufacturing cells Process similar parts or components saving duplication of equipment and labor Are often U-shaped to facilitate easier operator and material movements
LEAN is NOT
NOT a tool box of methods, ideas, or methodologie. Its a a culture
Statistical Process Control
Natural variations Expected and random (can't control) Assignable variations Have a specific cause (can control) Variable data Continuous, (e.g., Weight) Attribute data Indicate some attribute such as color and satisfaction, or beauty
Relationship of TCM to Manufacturing Strategy
Procurement and production costs go down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows) Inventory and warehousing costs go up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.) Transportation costs go down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)
Overproduction
Production before it is needed, or in excess of customer requirements. Providing a service that is not needed.
operations for lean six sigma
Proper cycle time calculation ensures production according to customer demand. Uniform work flow. Pull production.
Create cultural change needed for LEAN to succeed by
Provide atmosphere of cooperation. Empower workers to take action based on their ideas. Develop incentive system for lean behaviors.
Engineer-to-Order (ETO)
Quality must be part of the entire process, and not just part of purchasing and manufacturing—the typical focus of a repetitive manufacturer
What is Six Sigma?
Six Sigma is a structured and data-driven approach to drive such a near-perfect quality goal, i.e., "Zero Defects"
Engineer-to-Order (ETO)
cost of poor quality can be very high
Job Shop
creates a custom product for each customer. High customization
Value
defined as anything for which the customer is willing to pay
Total Cost of Manufacturing (TCM)
expressed as a cost per unit for each product
Make to Stock (MTS)
features economies of scale, large volumes, long production runs, low variety, and distribution channels
Pareto Charts
for presenting data in an organized fashion, indicating process problems from most to least severe.
LEAN
is composed of three elements working in unison
Make-to-Order (MTO)
is not appropriate for all types of products. It is appropriate for highly configured products such as computer servers, aircraft, ocean vessels, bridges, automobiles, or products that are very expensive to keep in inventory
Make-to-Order (MTO)
manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product but allowing for more flexible customization.
Line Flow
process has standard products with a limited number of variations moving on an assembly line through stages of production
Continuous Flow
process is used to manufacture such items as gasoline, laundry detergent and chemicals. Inflexible processes. High capital investment
Batch
process manufactures a small quantity of an item in a single production run
LEAN
provides value for customers through the use of the most efficient resources possible is standard in many industries often results in: Large cost reductions Improved quality Increased customer service
Total Cost of Manufacturing (TCM)
the complete cost of producing and delivering products to your customers
Value
the inherent worth of a product as judged by the customer and reflected in its selling price and market demand
5-S, or the five pillars of the visual workplace, is a systematic process of workplace organization.
1.Seiri, Organization, Sort -keep only necessary items in the workplace 2. Seiton, tidiness, set in order-arrance items to promote efficient workflow 3. seiso, purity, shine-clean thge work ara so it is neat and tidy 4. seiketsu, ceanliness, standardize-srt standards for a consistently organizes workplace 5. shitsuke, discipline,Sustain - Stick to the rules. Maintain and review standards.
LEAN Manufacturing
A coordinated system producing the exact products desired, delivered in the right quantities, where needed, and Just-in-Time (JIT) The Pull System Visual Signals Small Lot Production Uniform Plant Loading
W. Edwards Deming
Create constancy of purpose to improve product and service Adopt the new philosophy Cease dependence on inspection to improve quality End the practice of awarding business on the basis of price Constantly improve the production and service system Institute training on the job Institute leadership Drive out fear Break down barriers between departments Eliminate slogans and exhortations Eliminate quotas Remove barriers to pride of workmanship Institute program of self-improvement Put everyone to work to accomplish the transformation
Supply Chain Management seeks to incorporate LEAN elements using
Cross-training Satisfying internal customer demand Quickly moving products in the production system Communicating demand forecasts and production schedules up the supply chain Optimizing inventory levels across the supply chain Channel integration - extending alliances to suppliers' suppliers and customers' customers
The Eight Wastes ("DOWN TIME") :
Defects Overproduction Waiting Non utilized talent transportation inventory motio extraprocessing
small lot production Producing only a small amount of product at any one time:
Reduces inventory and excess processing. Increases flexibility allowing the company to respond to changes in customer demands more quickly. Reduces throughput time and gets product to customers more quickly. More responsive to customer demand. Shortens manufacturing lead time and the actual time it takes to produce a product. Setup time must be low so that it is easy to switch from producing one type of product to another.
