Final Exam (Exam 4)

Performance measures

"What gets measured gets done" is a quote from Tom Peters, which illustrates management's need for quantifiable measures. To determine an organization's performance, its progress must be measured. An organization must continually collect and analyze data in order to: -Discover which process(es) need(s) improvement. -Evaluate alternative processes. -Compare actual performance with targets so corrective action can be taken. -Evaluate employee performance. -Show trends. -Improve decision making. -Achieve consensus.

Processing equipment classifications

-General-purpose machinery -Special-purpose machinery

Documentation levels (pyramid)

-Level 1: Policies (quality manual) showing the scope of quality management system, indexed to level 2 -Level 2: Procedures, what the firm does to meet level 1, indexed to level 3 -Level 3: Practice, work instructions and detailed procedures on how work is accomplished -Level 4: Proof, records of what was done

reliability, durability, and maintainability

-Reliability means consistency of performance. It is measured by the length of time a product can be used before it fails. -Durability refers to the ability of a product to continue to function even when subjected to hard wear and frequent use. -Maintainability refers to being able to return a product to operating condition after it has failed.

Quality management system (QMS) 7 quality management principles

1. Customer focus 2. Leadership 3. Engagement of people 4. Process approach 5. Improvement 6. Evidence- based decision making 7. Relationship management

The steps in performing a Pareto analysis

1. Determine the method of classifying the data: by problem, cause, nonconformity, and so forth. 2. Select the unit of measure. This is usually dollars but may be the frequency of occurrence. 3. Collect data for an appropriate time interval, usually long enough to include all likely conditions. 4. Summarize the data by ranking the items in descending order according to the selected unit of measure. 5. Calculate the total cost. 6. Calculate the percentage for each item. 7. Construct a bar graph showing the percentage for each item and a line graph of the cumulative percentage.

X bar and R chart

A control chart for averages and ranges that tracks 2 critical characteristics of a frequency distribution - the center and the spread. Small samples (3-9 pieces) are taken on a regular basis over time and the sample averages and range are plotted. The range is used rather than the SD b/c it's easier to calculate. Samples are used in control charts rather than individual observations because average values will indicate a change in variation much faster.

Teams

A team is a group of people working together to achieve common goals or objectives. Good teams can move beyond the contribution of individual members so that the sum of their total effort is greater than their individual efforts. Working in a team requires skill and training, and to work in teams is part of total quality management.

supply chain collaboration

As part of simultaneous or concurrent engineering, collaboration with suppliers and customers across the product supply chain can be instrumental in designing a high quality, low cost, and successful product or service. This can be done informally through conversations with all entities, or more formally through the use of voice of the customer (VOC), or utilizing quality function deployment (QFD). This will be discussed further in Chapter 16. In addition to the results already mentioned for simultaneous engineering, customer satisfaction is improved by aligning products with customer needs, and the service or product features is perceived as value-added.

Quality and manufacturing

At the least, manufacturing is responsible for meeting the minimum specifications of the product design. Tolerances establish the acceptable limits and are usually expressed as the amount of allowable variation around the desired amount or nominal. For example, the length of a piece of lumber may be expressed as 7'6"± 1/8" This means that the longest acceptable piece would be 7'6 1/8" and the shortest acceptable piece would be 7'5 7/8 If an item is within tolerance, then the product should perform adequately. If it is not, it is unacceptable. However, the closer an item is to the nominal or target value, the better it will perform and the less chance there is of creating defects. Quality in manufacturing means that, at a minimum, all production must be within specification limits, and the less variation from the nominal value, the better the quality. Manufacturing must strive to produce excellent, not merely adequate, products. Every product or service produced will have some form of tolerance expressed. For example, the weight of bars of soap, the frequency response of compact disks, or the time spent waiting in line will all have a plus and (in most cases) a minus tolerance.

Process control

Attempts to prevent the production of defects by showing that when the SD increases or when there is significant change in the average, there is an assignable cause for variation. Since variation exists in all processes, the process must be designed that the spread will be small enough to produce a minimum number of defects.

Customer involvement

Chapter 1 discussed five manufacturing strategies—engineer-to-order, make-to-order, configure-to-order, assemble-to-order, and make-to-stock—and the extent of customer involvement in each. Process design will depend on which strategy is chosen.

Process capability index (Cp)

Combines the process spread and the tolerance into one index making it easier for operators and managers to quickly determine the capability of a process. It assumes that the process is centered between the upper and lower specification limits - that there has been no shift of the mean. It also assumes the processes are 6 sigma wide, representing 99.7% of the output of a normal process. If the 6 sigma process spread is smaller than the specification doorway the process is considered acceptable.

Communication

Communication plays an important role in disseminating the TQM concepts across all levels of the organization. Communicating the goals, purposes, and benefits of TQM is critical for fostering continuous improvement, maintaining morale, and motivating employees to be involved in the total quality management effort.

ISO standards

Cover all aspects of managing a business, including operations, administration, sales, and technical support. They put in place a process approach for all the day-to-day activities of generating products or services.

Focused Factory

Currently there is a trend toward more specialization in manufacturing whereby a factory specializes in a narrow product mix for a niche market. Generally, focused factories are thought to produce more effectively and economically than more complex factories, the reason being that repetition and concentration in one area allow the workforce and management to gain the advantages of specialization. The focused factory may be a "factory within a factory," an area in an existing factory set aside to specialize in a narrow product mix. Specialization has the disadvantage of inflexibility. Often it is difficult to use highly specialized labor and equipment for tasks other than those for which they were trained or built. In summary, the three ideas of simplification, standardization, and specialization are different but interrelated. Simplification is the elimination of the superfluous and is the first step toward standardization. Standardization is establishing a range of standards and standard components that will meet most needs. Finally, specialization would not be possible without standardization. Specialization is concentration in a particular area and therefore implies repetition, which cannot be arrived at without standard products or procedures. A program of product simplification, standardization, and specialization allows a firm to concentrate on the things it does best, provides the customers with what they want, and allows operations to perform with a high level of productivity. Reducing part variety will create savings in raw material, work-in-process, and finished goods inventory. It will also allow longer production runs, improve quality because there are fewer parts, and improve opportunities for automation and mechanization. Such a program contributes significantly to reducing cost.

Customer relationship management (CRM)

Customer relationship management (CRM) includes several activities with the intent to build and maintain a strong customer base. Customer wants and needs are assessed and cross-functional teams from the company work to align company activities around those customer needs.

Quality function deployment or QFD

Decision-making technique used in the development of new products or the improvement of existing products, which help ensure that the wants, needs, and expectations of the customer are reflected in a company's designs

Process systems

Depending on the product design, volume, and available equipment, the process engineer must design the system to make the product. As mentioned in Chapter 6, based on material flow, processes can be organized in three ways: -Flow. -Intermittent. -Project. The system used will depend on the demand for the item, range of products, and the ease or difficulty of moving material. All three systems can be used to make discrete units such as automobiles or textbooks, or to make nondiscrete process products such as gasoline, paint, or fertilizer.

Establishing Specifications

Determining what exactly to purchase is not necessarily a simple decision. For example, someone deciding to buy a car should consider how the car will be used, how often, how much one is willing to pay, and so on. Only then can an individual specify the type of car needed to make the appropriate purchase. This section looks at the problems that organizations face when developing specifications of products and the types of specifications that may be used. When purchasing an item or a service from a supplier, several factors must be taken into consideration when specifications are being developed. These can be divided into three broad categories: -Quantity requirements. -Price requirements. -Functional requirements.

Electronic data interchange (EDI)

Electronic data interchange (EDI) enables customers and suppliers to electronically exchange transaction information such as purchase orders, invoices, and material requirements planning information. This eliminates time-consuming paperwork and facilitates easy communication between planner/buyers and suppliers.

Electronic Requisition Systems

Electronic requisition systems are now widely used and are often part of enterprise resource planning (ERP) software. The minimum requisition information is still required, and the system can supply much of the details and control of the information based on predetermined settings. For example, the requisitioner can enter the desired part number and ERP will provide the appropriate description, specification, suggested suppliers, shipping instructions, and so on. The system will then forward the requisition for the appropriate approvals with controls in place for account number and spending limits. Once all the approvals have been completed, the requisition is sent to the purchasing department to produce the purchase order without reentering all the information. For items of small value (see C items covered in Chapter 9) that are ordered frequently, the system may send an electronic release of material directly to the approved supplier. The benefits of these tools to the company are ease of entry for the requisitioner, reduced paperwork, decreased turnaround time of requisitions, and improved accuracy of information.

Employee empowerment and self-directed teams

Employee empowerment and self-directed teams assume the workers have more knowledge and responsibility for understanding and performing the work. Empowering the workers to take more responsibility can lead to self-directed teams, where there is typically no supervisor. The workers themselves understand what is to be done and manage their own activities to accomplish the required work efficiently and effectively with little or no supervision.

Environmental management system (EMS)

Enable organization to identify and control the impact of its activities, products, and services on the environment throughout the product or service life cycle, as well as improve its environmental performance and contribute to sustainability

Engineering Drawings

Engineering drawings describe in detail the exact configuration of the parts and the assembly. They also give information on such things as finishes, tolerances, and material to be used. These drawings are a major method of specifying what is wanted and are widely used because often there is no other way to describe the configuration of parts or the way they are to fit together. They are produced by the engineering design department and are expensive to produce, but they give an exact description of the part required.

Total Cost

FC + VC*units

Functional Requirements

Functional specifications are concerned with the end use of the item and what the item is expected to do. By their very nature, functional specifications are the most important of all categories and govern the others. They are also the most difficult to define. To be successful, they must satisfy the real need or purpose of an item. In many cases, the real need has both practical and aesthetic elements to it. A coat is meant to keep one warm, but under what circumstances does it do so and what other functions is it expected to perform? How cold must it get before one needs a coat? On what occasions will it be worn? Is it for working or dress wear? What color and style should it be? What emotional needs is it expected to fill? In the same way, the question must be asked of what practical and aesthetic needs a component of a manufactured item is expected to satisfy.

vendor-managed inventory (VMI)

In recent years there has been an increase in the purchasing approach known as vendor-managed inventory (VMI). In this concept, a supplier maintains an inventory of certain items in the customer's facility. The supplier owns the inventory until the customer actually withdraws it for use, after which the customer pays for the amount consumed. The customer does not have to order any of the inventory, as the supplier is responsible for maintaining an adequate supply in the facility for customer use. This approach is most commonly used for lower-value products that have a relatively standard design, such as fasteners, standard electrical equipment, and so forth, although it can also be used for large-value items as well. Vendor-managed inventory reduces the need for many small MRP order releases, and increases the collaboration of the supply chain.

Acceptable Quality Level (AQL)

Lots are defined as acceptable if they contain no more than a specified level of defects, called the AQL. Above this level of defects, the lot will be rejected

Lower specification limit (LSL) and Upper specification limit (USL) and specification doorway

Lower - minimum acceptable level of output Upper - maximum acceptable level of output Specification doorway - distance between upper and lower specifications

Maintain

Maintaining is a follow-up activity that has two parts. The first is to be sure that the new method is being done as it should be. This is most critical for the first few days, and close supervision may be necessary. The second is to evaluate the change to be sure that the planned benefits are accomplished. If not, the method must be changed.

A Special Case: Process Industries

Many products are not produced by discrete production, and are typically classified as process industries. Some of the products in this category include chemicals (including gasoline), paper, glass, and some food products. Some of these are produced in a process flow production method but then packaged in a more discrete production mode (many food products, for example). While the fundamental concepts of inventory, capacity, scheduling, and so forth are used in process industries, the specific application of these can often be different than for discrete production. As examples, consider that many of the process industries produce price sensitive commodity products (even though they can be packaged differently). Often process operations are designed to run essentially on a continuous basis, implying major business activities tend to focus on raw material storage, finished goods storage, selling the output of the capacity, and on packaging and transportation scheduling. This is because the fundamental production typically uses specialized equipment with a narrow product definition, which in some cases is difficult to shut down and restart. The end of the process for many products tends to then diverge as the output may be packaged in several ways and sent to several customers all over the world. An additional issue that is common for process companies is the issue of lot tracing for the material produced.

Cpk index

Measures the effect of both center and variation at the same time. If the process distribution is well within the specification on the worst-case side, and is capable according to the Cp, then it is sure to be acceptable for the other specification limit. The greater the Cpk, the further the 3 sigma limit is from the specification limits and the fewer rejects there will be -Cpk less than 1 -> unacceptable, out of specification -Cpk between 1-1.33 -> marginal process, barely within specification -Cpk greater than 1.33 -> acceptable, well within specification

Price Negotiation

Prices can be negotiated if the buyer has the knowledge and the clout to do so. A small retailer probably has little of the latter, but a large buyer may have much. Through negotiation, the buyer and seller try to resolve conditions of purchase to the mutual benefit of both parties. Skill and careful planning are required for the negotiation to be successful. It also takes a great deal of time and effort, so the potential profit must justify the expense. One important factor in the approach to negotiation is the type of product. There are four categories: -Commodities. Commodities are materials such as copper, coal, wheat, meat, and metals. Price is set by market supply and demand and can fluctuate widely. Negotiation is concerned with contracts for future prices. -Standard products. These items are provided by many suppliers. Since the items are standard and the choice of suppliers large, prices are determined on the basis of published prices. There is not much room for negotiation except for large purchases. -Items of small value. These are items such as maintenance or cleaning supplies and represent purchases of such small value that price negotiation is of little purpose. The prime objective should be to keep the cost of ordering low. Firms will negotiate a contract with a supplier that can supply many items and set up a simple ordering system that reduces the cost of ordering. -Made-to-order items. This category includes items made to specification or for which quotations from several sources are received. These can generally be negotiated.

Process focus

Process focus is based on the similarity of process. For example, automobile manufacturers specialize in assembling automobiles. Other factories and companies supply the assemblers with components and the assembler specializes in assembly operations.

Product and market focus

Product and market focus can be based on characteristics such as customer grouping (serving similar customers), demand characteristics (volume), or degree of customization. For example, one company may specialize in a limited range of high-volume products, whereas another may specialize in providing a wider range of low-volume products with a high level of customization.

Product specification and design

Product design is responsible for producing a set of specifications that manufacturing can use to make the product. Products should be designed to be: -Functional. -Capable of low-cost processing. -Environmentally sensitive.

Quantity/capacity considerations

Product design, the quantity to produce, and process design are closely related. Both product and process design depend on the quantity needed. For example, if only one of an item is to be made, the design and the process used will be different than if the volume is 100,000 units. The quantity needed and the process design determine the capacity needed. Figure 14.4 shows this relationship. Note that all three are directly connected to the customer.

Product life cycle

Products, like people, have a limited life span. A product passes through several stages, known as the product life cycle, beginning with its introduction and ending with its disappearance from the marketplace. Figure 14.1 gives a simplified view of the profit and volume relationships in each phase of the cycle. No time scale is implied. The life cycle may take months or years to complete depending on the products and the market.

Sampling plans

Provide some assurance of the quality of goods while taking costs into consideration

ISO 14001:2015

Provides a structure and systems to help companies minimize harmful effects on the environment. Framework for an environmental management system (EMS)

Decline phase

Sales drop as customers begin to lose interest in the product or to buy improved versions from the company or its competitors. As profits decline still further, companies will look for ways to maintain profitability. Generally, there are three ways in which this can be done: -Introduce new products. -Improve existing products. -Improve the methods of production. Depending on the firm's resources, it may do these things through its own research and development, by copying competitors' products, or by relying on customers or suppliers to do the research and development work. This discussion focuses on the firm that does its own research, development, and engineering.

Six sigma (scope, quality definition, purpose, measurement, focus) AKA DMAIC (design, measure, analyze, improve, and control)

Scope: systematic reduction of process variability Quality definition: Defects per million possibilities Purpose: improve profits by reducing process variation Measurement: Defects per million possibilities Focus: locating and eliminating sources of process error

ISO 9001:2015

Set of standards or criteria for a quality management system, applying the principles of ISO 9000:2015

Control limits

Set so that there is a 99.7% probability than if the process is in control, the sample value will fall within the control limits.

Factors Influencing Process Design

Six basic factors must be considered when designing a process: 1. Product design and quality level 2. Demand patterns and flexibility needed 3. Quantity/capacity considerations 4. Customer involvement 5. Environmental concerns 6. Make or buy decision

Employee involvement (empowerment, encouraging commitment)

TQM is organization-wide and is everyone's responsibility. In a TQM environment, people come to work not only to do their jobs but also to work at improving their jobs. Motivating employees to improve their jobs needs employee commitment to the organization. To encourage this commitment through TQM requires the following: 1. Training. People should be trained in their own job skills and, where possible, cross-trained in other related jobs. They should also be trained to use the tools of continuous improvement, problem solving, and statistical process control. Training provides the tools for continual people-driven improvement. 2. Organization. The organization must be designed to put people in close contact with their suppliers and customers, internal or external. One way is to organize into customer-, product-, or service-focused cells or teams. 3. Local ownership. People should be owners of the processes they work with. This results in a commitment to make their processes better and to push for continuous improvement. They should be empowered, which goes beyond providing a suggestion box for employee input. Empowerment means giving people the authority to make decisions and take action in their work areas without getting prior approval. For example, a customer service representative can respond to a customer's complaint on the spot rather than getting approval or passing the complaint on to a supervisor. Giving people the authority to make decisions motivates them to take ownership of their jobs to accomplish the goals and objectives of the organization. The personnel involved in a particular process are usually the best source of information for how to improve that process and eliminate waste or unnecessary steps.

Acceptance sampling

Taking a sample batch of product and using it to estimate the overall quality of the batch. Based on the results, either reject or accept the entire batch. Sometimes a good batch will be rejected and a bad batch will be accepted.

100% inspection

Testing every unit in the lot. Use this when the cost of inspection is less than the cost of any loss resulting from failure

Outsourcing

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

People involvement

Today management recognizes the need to maximize the potential of flexible, motivated workers. People are capable of thinking, learning, problem solving, and contributing to productivity. With existing processes and equipment, people are the primary source of improvement because they are the experts in the things they do. Process improvement is not solely the responsibility of industrial engineers. Everyone in the workforce must be given the opportunity to improve the processes they work with. Techniques that help to analyze and improve work are not complicated and can be learned. Indeed, the idea of continuous improvement is based on the participation of operators and improvement in methods requiring relatively little capital. Workers have two jobs: -Their "as defined" job. -To improve their "as defined" job.

Unit Cost

Total Cost/# Units OR (FC/# Units) + VC Per Unit

Total quality management (TQM)

Total quality management (TQM) is an approach to improving both customer satisfaction and the way organizations do business. TQM brings together all of the quality and customer-related process improvement ideas. It is people oriented. According to APICS Dictionary, 14th edition, "it is based on the participation of all members of an organization in improving processes, products, services, and the culture in which they work." The objective of TQM is to provide a quality product to customers at a fair price. By increasing quality and decreasing cost, profit and growth will increase, which in turn, will increase job security and employment. TQM is both a philosophy and a set of guiding principles that lead to a continuously improving organization.

House of Quality

Used to sort all of the data into a structure process that takes the customer requirements, prioritizes them, and sets the engineering target values for the new design

Flow processes (flow processing, continuous flow processing, repetitive manufacturing, product layout)

Workstations needed to make the product, or family of similar products, are grouped together in one department and are laid out in the sequence needed to make the product. Examples are assembly lines, cafeterias, oil refineries, and steel rolling mills. In flow processing, work flows from one workstation to another at a nearly constant rate and with no delays. Continuous flow processing is used to manufacture products such as liquids, basic metals, and commodities such as petroleum products. There is some method of moving goods between workstations. If the units are discrete, such as automobiles, flow manufacturing is called repetitive manufacturing. The typical flow pattern is shown in Figure 14.5. Flow process layout is sometimes called product layout because the system is set up for a limited range of similar products. Flow systems produce only a limited range of similar products. For example, an assembly line that produces a certain type of refrigerator cannot be used to assemble washing machines. The operations and materials used to make one are different and in a different sequence than those used for making the other. Demand for the family of products has to be large enough to justify setting up the line economically. If sufficient demand exists, flow systems are extremely efficient, for several reasons: -Workstations are designed to produce a limited range of similar products, so machinery and tooling can be specialized. -Because material flows from one workstation to the next, there is very little buildup of work-in-process inventory. -Because of the flow system and the low work-in-process inventory, lead times are short. -In most cases, flow systems substitute capital for labor and standardize what labor there is into routine tasks.

Quality costs fall into two broad categories:

the cost of failure to control quality and the cost of controlling quality

Measurement is needed for all types of processes. Some of the areas and possible measurements are:

-Customer. Number of complaints, on-time delivery, dealer or customer satisfaction, customer response time, percentage of past due orders, perfect order fulfillment (right product, right customer, right time, right place, right condition, right quantity, right cost). -Scheduling. Number of changes within the demand and planning time fences, percentage of orders completed on time, percentage past due MPS orders. -Material planning. Percentage of orders released with no shortages, percentage of on-time order release, number of action messages, actual versus planned lead times. -Capacity planning. Percentage of work centers overloaded or underloaded, percentage of overtime to available work time, utilization of work centers, work center downtime percentage. -Inventory control. Percentage increase in inventory turns, percentage reduction in WIP inventory, percentage reduction in carrying costs, ratio of obsolete inventory to total inventory. -Production. Inventory turns, scrap or rework, process yield, cost per unit, time to perform operations, performance to schedule, percentage of queue time in lead time. -Suppliers. Billing accuracy, percentage of past due orders, perfect order fulfillment. -Sales. Sales expense to revenue, new customers, gained or lost accounts, sales per square foot of facility. -Operating costs. Ratio of value-added cost to total product cost, percentage reduction in setup costs, percentage reduction in logistics costs, percentage reduction in material handling costs. -Data accuracy. Bill of material accuracy, routing accuracy, inventory record accuracy, work center record accuracy.

Advantages associated with an effective supply chain perspective

-More effective product specification, allowing for efficient product substitutions and product specifications focused on fitness of use. -Better leveraging of volume discounts and supplier consolidation. -Long-term contracts with efficient communication systems, significantly reducing the administrative cost of ordering and order tracking. -More effective use of techniques such as electronic commerce, using credit cards for payments, and blanket ordering. -Reducing environmental costs by avoiding potentially hazardous materials and exercising the 3 Rs of reduce, reuse, and recycle.

Select the process

-Observe -Select (economic considerations and human considerations)

Purchasing Objectives (5 categories)

-Obtaining goods and services of the required quantity and quality. -Obtaining goods and services at the lowest total cost. -Ensuring the best possible service and prompt delivery by the supplier. -Developing and maintaining good supplier relations and developing potential suppliers. -Selecting products and suppliers that minimize the impact on the environment. -To satisfy these objectives, some basic functions must be performed: -Determining purchasing specifications: right quality, right quantity, and right delivery (time and place). -Selecting supplier (right source). -Negotiating terms and conditions of purchase (right price). -Issuing and administration of purchase orders and agreements.

Identifying Suppliers

-Salespersons of the supplier company. -Internet. -Catalogues. -Trade magazines. -Trade directories. -Information obtained by the salespeople of the buyer firm.

6 basic concepts in TQM

1. A committed and involved management. (since TQM is an organization-wide effort, management must direct and participate in the quality improvement program. TQM is a continuous process that must become part of the organization's culture. This requires senior management's absolute commitment, as they are directly responsible for the quality improvement) 2. Focus on the customer. (This means listening to the customer so goods and services meet customer needs at a low cost while including value-adding features. It means improving design and processes to increase value from the customer's point of view and to reduce defects and cost. TQM embraces the idea that quality is defined by the customers' requirements) 3. Total employee involvement. (Total quality management is the responsibility of everyone in the organization, and involves the total workforce. It means training and empowering all personnel in the techniques of product and process improvement and creating a new culture) 4. Continuous process improvement. (Processes can and must be improved to reduce cost and increase quality) 5. Supplier partnering. (A partnership rather than an adversarial relationship with suppliers must be established. As discussed in Chapter 15, this should lead to mutual benefit to both parties) 6. Performance measures. (Improvement is not possible unless there is some way to measure the results, including fact-based decision making)

Conditions necessary for sampling inspection (statistical sampling)

1. All items must be produced under similar or identical conditions 2. A random sample of the lot must be taken 3. The lot to be sampled should be a homogeneous mixture 4. The batches to be inspected should be large

Selecting a particular sampling plans depends on

1. Consumer's risk (probability of accepting a bad lot) 2. Producer's risk (probability of rejecting a good lot) 3. Cost (inspection costs money. balance consumer's risk and producers risk against the cost of the sampling plan)

Principles of Motion Economy

1. Locate materials, tools, and workplace within normal working areas and pre-position tools and materials. 2. Locate the work done most frequently in the normal working areas and everything else within the maximum grasp areas. 3. Arrange work so motions of hands, arms, legs, and so on are balanced by being made simultaneously, in opposite directions, and over symmetrical paths. Both hands should be working together and should start and finish at the same time. The end of one cycle should be located near the start of the next cycle. 4. Conditions contributing to operator fatigue must be reduced to a minimum. Provide good lighting, keep tools and materials within maximum working areas (see Figure 14.13), provide for alternate sitting and standing at work, and design workplaces of proper height to eliminate stooping.

Other Quality Control Tools

1. Pareto diagrams (histograms that are reorganized to show the highest bar first, allows one to focus on most important issues) 2. Checksheets (collects data, once an issue has been determined the sources of the complaints are listed as they occur. When a complaint is repeated a check is placed beside the reason. Over time the checks should show the source of the complaint) 3. Process flow diagrams (show in detail the steps required to produce a product or service. Once the specific tasks are identified, data can be collected about these tasks to determind bottlenecks or other types of problems that can be correted) 4. Scatterplots (show relationship between 2 variables of interest) 5. Cause and effect (fishbone) diagrams

Dimensions of quality

1. Performance (The primary operating characteristic that the customer wants from a product, such as the power of an engine. Performance implies that the product or service is ready for the customer's use at the time of sale. The term fitness for use, that the product does what it is supposed to do, is often used to describe this. Three dimensions to performance are important: reliability, durability, and maintainability) 2. Features (include secondary characteristics or extras, such as a remote control on an appliance or entertainment unit. These may also be known as options, such as the addition of extras in the purchase of an automobile) 3. Conformance (Meeting established standards or specifications. This is manufacturing's responsibility) 4. Warranty (An organization's public promise to back up its products with a guarantee of customer satisfaction) 5. Service (An intangible generally made up of a number of things such as the customer service staff's availability, speed of service, courtesy, and competence. It may also include after sale service) 6. Aesthetics (The product is pleasing to the senses; for example, the exterior finish or the appearance of a product) 7. Perceived quality (Customers perceive quality not only in the product itself but also in satisfaction based on the complete experience with an organization. Many intangibles, such as a company's reputation or past performance, influence perceived quality) 8. Price (Customers pay for value in what they buy. Value is the sum of the benefits the customer receives and can be more than the product itself. All the dimensions of quality listed are elements of value)

Basic characteristics that can be used to measure the performance of a particular process or activity

1. Quantity. For example, how many units a process produces in a period of time. Time standards measure this dimension. 2. Cost. The amount of resources needed to produce a given output. 3. Time/delivery. Measurements of the ability to deliver a service or product on time. 4. Quality. There are three dimensions to quality measurements: -Function. Does the product perform as specified? -Aesthetics. Does the product or service appeal to customers? For example, the percentages of people who like certain features of a product. -Accuracy. This measures the number of nonconforming items produced. For example, the number of defects or rejects, or the ability to meet specifications.

Purchasing Cycle (7 Steps)

1. Receiving and analyzing purchase requisitions. 2. Selecting suppliers, including researching and finding potential suppliers, issuing requests for quotations, receiving and analyzing quotations, and selecting the right supplier. 3. Determining the right price. 4. Issuing purchase orders and agreements. 5. Following up to ensure delivery dates are met. 6. Receiving and accepting goods. 7. Approving supplier's invoice for payment.

Once a 6 sigma project has been selected:

1. Select the appropriate metrics or key performance output variables 2. Determine how the metrics will be tracked over time 3. Determine the current project baseline performance 4. Determine the input variables that drive the key performance output variables 5. Determine what changes need to be made to the input variables to positively affect the key performance output variables 6. Make the changes 7. Determine if the changes positively affect the key performance output variables 8. If the changes positively affect the key performance output variables, establish controls of the input variables at the new levels, if they do not return to step 5

6 Steps of Continuous Process Improvement

1. Select the process to be studied. 2. Record the existing method to collect the necessary data in a useful form. 3. Analyze the recorded data to generate alternative improved methods. 4. Develop the best method of doing the work by evaluating the alternatives. 5. Implement the method as standard practice by training the operator. 6. Maintain the new method.

Steps in Benchmarking

1. Select the process to benchmark 2. Identify an organization that is best in class in performing the process you want to study 3. Study the benchmarked organization 4. Analyze the data

Intent of ISO is to apply a standard to any organization seeking:

1. Sustained success through implementation of a quality management system 2. Confidence in their ability to consistently provide products or services which conform to requirements 3. Confidence in their supply chain to meet requirements 4. Improvement in communication through a common understanding of quality management vocabulary 5. Ability to perform conformity assessments 6. Provide training, assessments, or advice in quality management 7. Develop related quality standards

Factors in Selecting Suppliers

1. Technical Ability 2. Manufacturing Capability 3. Reliability 4. After-Sales Service 5. Location 6. Lean Capabilities 7. Other Considerations - credit terms, reciprocal business, supplier health and safety record, and willingness of the supplier to hold inventory for the buyer should be considered. 8. Price

Reasons for sampling inspection

1. Testing the product is destructive 2. There is not enough time to give 100% inspection to a batch of a product (can cause shipment delays) 3. It is too expensive to test all of the batch 4. Human error is estimated to be as high as 20% when performing long-term repetitive testing

Product development specifications

A few organizations supply a single product, but most supply a range of similar or related products. There are two conflicting factors to be considered in establishing the range of products to supply. -If the product line is too narrow, customers may be lost. -If the product line is too wide, customers may be satisfied, but operating costs will increase because of the lack of specialization. Sales organizations are responsible for increasing sales and revenue. They want to offer product variety to consumers. Often this means the organization must offer a variety of products, many of which sell in small volumes. Operations, on the other hand, would like to produce as few products as possible and make them in long runs. In this way it can reduce the number of setups (and cost) and probably reduce run costs by using specialized equipment or labor. It would fulfill its mandate to produce at the lowest cost. Somehow the needs of the market and the economics of production must be balanced. Usually this balance can be obtained with good programs of: -Product simplification -Product standardization -Product specialization.

Quality and product design

A firm's studies of the marketplace should yield a general specification of the product, outlining the expected performance, appearance, price, and volume. Product designers must then build into the product the quality level described in the general specification. They determine the materials to be used, dimensions, tolerances, product capability, and service requirements. If product designers do not do this properly, the product or service will be unsuccessful in the marketplace because it may not adequately satisfy the needs and expectations of the user.

Total Cost of Ownership

A low landed cost still may not be a good decision when the total cost of ownership to the company is considered. For example, a carpenter will pay a lower price for a lower grade of wood. However, the time spent on sorting out knots and defects and the decreased yield of good material will incur production-related costs, which will increase the total cost of the final product, perhaps canceling any savings made in price. The total cost concept looks at the total costs of an item, and not at just the price paid for materials.

Make or buy decision

A manufacturer has the alternative of making parts in-house or of buying them from an outside supplier. Few companies make everything or buy everything they need. Indeed, on the average, North American manufacturers purchase more than 50% of the cost of goods manufactured. A decision has to be made about which items to make and which to buy. Although cost is the main determinant, other factors such as the following are usually considered: -Product design (what to produce) -Process design (how to produce) -Capacity (how much to produce)

A process flow diagram

A process flow diagram shows graphically and sequentially the various steps, events, and operations that make up a process. It provides a picture, in the form of a diagram, of what actually happens when a product is made or a service performed. In addition to the six symbols shown in Figure 14.10 (operation, inspection, movement, storage, delay, decision), others may be used to show such things as rework and documentation. Figure 14.12 shows an example of a process flow diagram. In this example, the process starts when the goods are received and ends when a check is sent to the supplier.

Issuing a Purchase Order

A purchase order is a legal offer to purchase. Once accepted by the supplier, it becomes a legal contract for delivery of the goods according to the terms and conditions specified in the purchase agreement. The purchase order is prepared from the purchase requisition or the quotations and from any other additional information needed. A copy is sent to the supplier, copies are retained by purchasing and are also sent to other departments such as accounting, the originating department, and receiving. Purchase orders are often submitted electronically to the supplier, and are retained internally as electronic files that are accessible by all departments, as a substitute for paper purchase orders.

Communication is Essential

Advantages to this approach: -Time to market is reduced. The organization that gets its products to market before the competition gains a strong competitive advantage. -Cost is reduced. Involving all stakeholders early in the process means less need for costly product or design changes later. -Better quality. Because the product is designed for ease of production and ease of implementing quality during manufacturing, the number of rejects will be reduced. Because quality is improved, the need for after-sales service and warranty costs are reduced. -Lower total system cost. Because all groups affected by the product design are consulted, all concerns are addressed. For example, field service might need a product that is designed so it is easy to service in the field, thus reducing servicing costs.

Six Sigma

Aimed at defect rates of 3.4 parts per million. About more than just measurements of parts production, it also encourages companies to focus on improving all business processes. Process improvements result in reduced waste, costs, an lost opportunities, which all lead to higher profits for the producer and benefits to the customer. A highly focused system of problem solving with 2 main elements: projects and project managers

Nesting

Another way of looking at the hierarchy of processes is the concept of nesting. Several small processes are linked to form a larger process. Consider Figure 14.3. Level zero shows a series of steps, each of which may have its own series of steps. One of the operations on level zero is expanded into its component parts and shown on level one. The nesting can continue to further levels of detail.

Expansion of Purchasing into Supply Chain Management (Reverse Logistics)

As computers and software (ERP, for example) have become more powerful and effective, information flows have become easier and the ability to handle large amounts of data has become more feasible. This condition has allowed companies to expand their planning and control perspectives to include upstream (suppliers) and downstream (distributors and customers) entities. This concept of the supply chain has four major components that are managed: -The flow of physical materials from suppliers, downstream through the company itself, and finally to distributors and/or customers. -The flow of money upstream from customers back to the companies and suppliers. -The flow of information up and down through the stream. -The flow of products back (upstream) from the customers, typically for repairs or recycling. This is known as reverse logistics.

Healthcare Price Negotiations

As in other industries, price is dependent on various factors. However, in healthcare, one factor that needs to be realized is the amount the institution will reimburse for that particular product. The cost to provide patient care includes the cost of goods and the cost to administer care. While most contracts within healthcare are negotiated toward a fixed cost, organizations need to make certain they cover those costs and have an understanding of what reimbursement they will receive from providers. The second piece is the ability to benchmark pricing. Some institutions have access to pricing data that is available from various sources. By using this data, it gives the institution the ability to see what the upper and lower limits are on particular products. This data can be used to begin price negotiation to ensure you are covering all the costs. The final portion is the availability of the product. Organizations need to partner with vendors/suppliers who sufficiently supply to meet their needs and deliver it in a timely, cost-effective manner. Quality products at the right price and delivered at the right time.

Statistical control

As long as only random variation exists, the system is said to be in statistical control. If there is an assignable cause for variation, the process is not in control and is unlikely to consistently produce a good product. As will be shown later in this chapter, the objective of statistical process control is to detect the presence of assignable causes of variation. Statistical process control has two objectives: 1. To help select processes capable of producing the required quality with minimum defects. 2. To monitor a process to be sure it continues to produce at the required quality and no assignable cause for variation exists.

Price Determination

As mentioned previously, price is not the only factor in making purchasing decisions, but can be the determining factor if all other things are equal. In the average manufacturing company, purchases account for about 50% of the cost of goods sold, and any savings made in purchase cost has a direct influence on profits. Best price would include the best mixture of function, quantity, service, and price characteristics.

Supplier responsiveness and reliability

Because material requirements often change, suppliers must be able to react quickly to change. They must be highly flexible and reliable so they can react quickly to changes in schedules. Responsiveness and reliability are qualitative factors that must be taken into consideration when selecting suppliers. Long-term contracts ensure suppliers a given amount of business and commits them to allocating that amount of their capacity to the customer. Suppliers are more responsive to customer needs and can react quickly to changes in schedules. Because customers know the capacity will be available when needed, they can delay ordering until they are more sure of their requirements.

Assignable variation

Chance is not the only cause of variation. A tool may shift, a gauge may move, a machine may wear, or an operator may make a mistake. There is a specific reason for these causes of variation, which is called assignable variation.

Competitive Bidding

Competitive bidding occurs when a buyer compares the price of a product from various suppliers and simply chooses the lowest price. This can be the formal process of sending out quotations and analyzing the results or simply comparing catalogue or advertised prices. The process does take some time, and a number of sources must be available. At least three sources are desired to make a good comparison. Competitive bidding also requires that the product be well specified and widely available. Items such as nuts and bolts, gasoline, bread, and milk are usually sourced using competitive bidding.

Close Relationship with Suppliers (Need for Supplier Flexibility and Reliability)

Contract buying and the need for supplier flexibility and reliability mean the buyer/supplier relationship must be close and cooperative. There must be excellent two-way communication, cooperation, and teamwork. Both parties have to understand their own and the other's operations and problems. The planner/buyer and the supplier counterpart, often the supplier's production planner, must work on a daily or weekly basis to ensure both parties are aware of any changes in material requirements or material availability.

Description by Brand

Description by brand is most often used in wholesale or retail businesses but can also be used extensively in manufacturing. This is particularly true under the following circumstances: -Items are patented, or the process is secret. -The supplier has special expertise that the buyer does not have. -The quantity bought is so small that it is not worth the buyer's effort to develop specifications. -The supplier, through advertising or direct sales effort, has created a preference on the part of the buyer's customers or staff. When buying by brand, the customer is relying on the reputation and integrity of the supplier. The assumption is that the supplier wishes to maintain the brand's reputation and will maintain and guarantee the quality of the product so repeat purchases will give the buyer the same satisfaction. Most of the objections to purchasing by brand center on cost. Branded items, as a group, usually have price levels that are higher than nonbranded items. It may be less costly to develop specifications for generic products than to rely on brands. The other major disadvantage to specifying by brand is that it restricts the number of potential suppliers and reduces competition. Consequently, the usual practice, when specifying by brand, is to ask for the item by brand name or equivalent. In theory, this allows for competition.

Nesting concept

Every activity involves a process of some type. Going to the bank to deposit or withdraw money, preparing a meal, or going on a trip involves a process or series of processes. Sometimes consumers are personally involved in the process. Most have waited at a checkout counter in a store and wondered why management has not devised a better process for serving customers.

Analyze

Examination and analysis are the key steps in continuous process improvement. Although all the other steps are significant, they either lead up to, or result from, the critical analysis. This step involves analyzing every aspect of the present method and evaluating all proposed possible methods.

Requesting Quotations

For high cost items, it is usually desirable to issue a request for quote (RFQ). This is a written inquiry that is sent to enough suppliers to be sure competitive and reliable quotations are received. It is not a purchase order. After the suppliers have completed and returned the quotations to the buyer, the quotations are analyzed for price, total cost, compliance to specification, terms and conditions of sale, delivery, and payment terms.

Functional Specification Description

Functional specification can be described in the following ways or by a combination of them: 1. By brand. 2. By specification of physical and chemical characteristics, material and method of manufacture, and performance. 3. By engineering drawings. 4. By miscellaneous attributes.

Functional specifications and quality

Functional specifications are closely tied to the quality of a product or service. There are many definitions of quality, but they all center on the idea of user satisfaction. On this basis, it can be said that an item has the required quality if it satisfies the needs of the user. There are four phases to providing user satisfaction: 1. Quality and product planning. 2. Quality and product design. 3. Quality and manufacturing. 4. Quality and use. -Product planning is involved with decisions about which products and services a company is going to market. It must decide the market segment to be served, the product features and quality level expected by that market, the price, and the expected sales volume. The basic quality level is specified by senior managers according to their understanding of the needs and wants of the marketplace. The success of the product depends on how well they do this. -The result of the firm's market studies is a general specification of the product outlining the expected performance, appearance, price, and sales volume of the product. It is then the job of the product designer to build into the design of the product the quality level described in the general specification. If this is not properly done, the product may not be successful in the marketplace. -For manufactured products, it is the responsibility of manufacturing, at a minimum, to meet the specifications provided by the product designer. If the item is bought, it is purchasing's responsibility to make sure the supplier can provide the required quality level. For purchasing and manufacturing, quality means conforming to specifications or requirements. -To the final user, quality is related to his or her expectation of how the product should perform. Customers do not care why a product or service is defective. They expect satisfaction. If the product is what the customer wants, well designed, well made, and well serviced, the quality is satisfactory. -Functional specifications should define the quality level needed. They should describe all those characteristics of a product determined by its final use. -Function, quantity, service, and price are interrelated. It is difficult to specify one without consideration of the others. The final specification is a compromise of all four, and the successful specification is the best combination. However, functional specifications ultimately are the ones that drive the others. If the product does not perform adequately for the price, it will not sell.

Voice of the customer (VOC)

Gathering needs of the customer using various survey methods or by comparing a company's own products against the competitions.

General-purpose machinery

General-purpose machinery can be used for a variety of operations or can do work on a variety of products within its machine classification. For example, a home sewing machine can sew a variety of materials, stitches, and patterns within its basic capability. Different auxiliary tools can be used to create other stitches or for particular sewing operations.

Selecting the process

Generally, the larger the volume (quantity) to be produced, the greater the opportunity to use special-purpose processes. The more special purpose an operation, the faster it will produce. Often the capital cost for such machinery or for special tools or fixtures is high. Capital costs are called fixed costs and the production, or run, costs are called variable costs.

Healthcare supply and distribution

Healthcare is no different to the supply and demand process. It is all based on the need and current volume an institution has when taking care of patients. By working with suppliers and distributors, healthcare institutions can begin to forecast their needs based on trends or ordering patterns. The supplier/distributor will then provide the institution the inventory by following the defined replenishment process. That process typically follows: -Purchase request -Purchase order -Supplier/distributor delivering product -Receipt of product -Product replenishment to either a warehouse, store room, or par location -Par/cycle count This process can either happen manually or electronically depending on the organizations preference. Organizations will keep a certain amount of inventory in par locations and replenish from either a store room or warehouse.

Identifying and Selecting Suppliers

Identifying and selecting suppliers are important responsibilities of the purchasing department. For routine items or those that have been purchased before, a list of approved suppliers is maintained. If the item has not been purchased before or there is no acceptable known supplier, a search must be made. Other items may require input from the engineering and design departments for suggested suppliers. More on selecting suppliers will be discussed later in this chapter.

Demand patterns and flexibility needed

If there is variation in demand for a product, the process must be flexible enough to respond to these changes quickly. For example, if a full-service restaurant sells a variety of foods, the process must be flexible enough to switch from broiling hamburgers to making pizzas. Conversely, if a pizza parlor sells nothing but pizzas, the process need not be designed to cook any other type of food. Flexible processes require flexible equipment and personnel capable of doing a number of different jobs.

Planner/buyer concept

In a traditional system, the material requirements planner releases an order either to production activity control or to purchasing. Purchasing issues purchase orders based on the material requirements plan. Production activity control prepares shop orders, schedules components into the work flow, and controls material progress through the plant. When plans change, as they invariably do, the production planner must advise the buyer of the change, and the buyer must advise the supplier. The production planner is in closer, more continuous contact with material requirements planning and frequently changing schedules than is the buyer. To improve the effectiveness of the planner/buyer activity, many companies have combined the two functions of buying and planning into a single job done by one person. Planner/buyers do the material planning for the items under their control, communicate the schedules to their suppliers, follow up, resolve problems, and work with other planners and the master scheduler when delivery problems arise. The planner/buyer is responsible for the following: -Determining material requirements. -Developing schedules. Issuing shop orders. -Issuing material releases to suppliers. Establishing delivery priorities. -Controlling orders in the factory and to suppliers. -Handling all the activities associated with the buying and production scheduling functions. -Maintaining close contact with supplier personnel. Because the roles of production planning and buying are combined, there is a smoother flow of information and material between the supplier and the factory. The planner/buyer has a keener knowledge of factory needs than the buyer does and can better coordinate the material flow with suppliers. At the same time, the planner/buyer is better able to match material requirements with the supplier's manufacturing capabilities and constraints.

key performance indicators (KPI's) and balanced scorecard

In addition to these measurements, organizations use key performance indicators (KPI's) to highlight those specific measures that are linked to specific strategic objectives. These measures, first mentioned in Chapter 2, are both financial and nonfinancial, and typically address key areas such as profitability, customer satisfaction, and other supply chain activities. These can be tracked using a balanced scorecard, which APICS Dictionary, 14th edition, defines as "a list of financial and operational measurements used to evaluate organizational or supply chain performance. Dimensions of the balanced score care might include customer perspective, business process perspective, financial perspective, and innovation and learning perspectives. It formally connects overall objectives, strategies, and measurements.

Intermittent processing (intermittent manufacturing, process layout, functional layout)

In intermittent manufacturing, goods are not made continuously as in a flow system but are made at intervals in lots or batches. Workstations must be capable of processing many different parts. Thus, it is necessary to use general-purpose workstations and machinery that can perform a variety of tasks. General-purpose workstations do not produce goods as quickly as special-purpose workstations used in flow manufacturing. Usually, workstations are organized into departments based on similar types of skills or equipment. For example, all welding and fabrication operations are located in one department, machine tools in another, and assembly in yet another department. Work moves only to those workstations needed to make the product and skips the rest. This results in the jumbled flow pattern shown in Figure 14.6. This is referred to as a process layout, or functional layout, in which similar functions or equipment are grouped together, and product flows from work center to work center. Intermittent processes are flexible. They can change from one part or task to another more quickly than can flow processes. This is because they use general-purpose machinery and skilled flexible labor that can perform the variety of operations needed. Control of work flow is managed through individual work orders for each lot or batch being made. Because of this and the jumbled pattern of work flow, manufacturing planning and control of the shop floor are critical. Often, many work orders exist, each of which can be processed in different ways. Provided the volume of work exists to justify it, flow manufacturing is less costly than intermittent manufacturing. There are several reasons for this: -Setup costs are low. Once the line is established, changeovers are needed infrequently to run another product. -Since work centers are designed for specific products, run costs are low. -Because products move continuously from one workstation to the next, work-in-process inventory will be low. -Costs associated with controlling production are low because work flows through the process in a fixed sequence. But the volume of specific parts must be enough to use the capacity of the line and justify the capital costs

Random variation

In nature or any manufacturing process, one can expect to find a certain amount of unexplained random variation that is inherent in the process and occurs by chance. This variation comes from everything influencing the process but is usually separated into the following six categories: 1. People. Poorly trained operators tend to be more inconsistent compared to well-trained operators. 2. Machine. Well-maintained machines tend to give more consistent output than a poorly maintained machine. 3. Material. Consistent raw materials give better results than poor quality, inconsistent, or ungraded materials. 4. Method. Changes in the method of doing a job will alter the quality. 5. Environment. Changes in temperature, humidity, dust, and so on can affect some processes. 6. Measurement. Measuring tools that may be in error can cause incorrect adjustments and poor process performance. Dividing all possible variations into these six smaller categories makes it easier to identify the source of variation occurring in a process. If a connection can be found between variation in the product and variation in one of its six sources, then improvements in quality are possible. There is no way to alter random variation except to change the process. If the process produces too many defects, then it must be changed.

Standardization

In product design, a standard is a carefully established specification covering the product's material, configuration, measurements, and so on. Thus, all products made to a given specification will be alike and interchangeable. Light bulbs are a good example of standardization: the sockets and wattage are standardized and the light bulbs are interchangeable. A range of standard specifications can be established so it covers most uses for the item. Men's shirts are made in a range of standard collar sizes and sleeve lengths so nearly everyone can be fitted. Most shirt manufacturers also use the same standards so the consumer can get the same size shirt from any manufacturer and expect it to fit. Because product standardization allows parts to be interchangeable, as long as the range of standard specifications has been well chosen, a smaller variety of components is needed. Using the example of light bulbs, the wattages are standardized at 40, 60, and 100 watts. This range allows users to pick wattages that satisfy their needs and manufacturers to reduce the number of different bulbs, thus reducing inventory. Another aspect of standardization is the way parts fit together. If the designs of assemblies are standardized so various models or products are assembled in the same way, then mass production is possible. The automotive industry designs automobiles so many different models can be assembled on the same assembly line. For example, several different engines can be mounted in a chassis because the engines are mounted in the same way and designed so they will all fit into the engine compartment.

Growth Phase

In this phase, sales of a successful product increase at a rapid rate. The design of the product has stabilized and production increases, resulting in a decrease of the unit cost of the product. The increased sales volume and the lower unit cost cause profits to increase rapidly. However, the success of the product usually attracts the attention of competitors. Their entrance into the market forces prices down, possibly reducing the firm's sales. At this point profits are squeezed.

Mutual Dependency

In today's supply chain environment, the type of relationship between the supplier and the buyer is crucial to both. Ideally, the relationship will be ongoing with a mutual dependency. The supplier can rely on future business, and the buyer will be ensured of a supply of quality product, technical support, and product improvement. Communications between buyer and supplier must be open and complete so both parties understand the problems of the other and can work together to solve problems to their mutual advantage. Thus, supplier selection and supplier relations are of the utmost importance.

Internet, Intranet, Extranet

Internet technology has changed the purchasing function in many ways. There are three variations of networks used: internet, intranet, and extranet. The internet is most commonly used and is open to the general public. An intranet is an internal network that is normally used within the boundaries of a company. It may stretch across many manufacturing sites or even countries. Much of the data shared in this environment is considered sensitive, and therefore, access is usually limited to people within the company. Extranet is an intranet shared by two or more companies. Each participating company moves certain data outside of a private intranet to the extranet, making it available only to the companies sharing the extranet. For example, a supplier may be provided with information such as the planned order releases from ERP or the stock status of an item. Integration of two distinct ERP systems via the internet, to enable real-time communication between a customer and a supplier, is also now possible.

Job design (job enlargement, job enrichment, job rotation)

Job design is an attempt to provide more satisfying meaningful jobs and to use the worker's mental and interpersonal skills. These improvements include the following: Job enlargement expands a worker's job by clustering similar or related tasks into one job. For example, a job might be expanded to include a sequence of activities instead of only one activity. This is called horizontal enlargement. Job enrichment adds more meaningful, satisfying, and fulfilling tasks. The job not only includes production operations but also many setup, scheduling, maintenance, and control responsibilities. Job rotation trains workers to do several jobs so they can be moved from one job to another. This is called cross-training. All these factors help to create a more motivated and flexible workforce. In modern manufacturing, where quick response to customers' needs is essential, these characteristics can mean the difference between business success and failure.

Environmental concerns

Just as in product design, the process design should have minimal impact on the environment, if at all possible. In addition, concern should be taken to minimize the amount of energy utilized. This consideration also directly impacts the cost of running the process. Painting often involves the use of solvents and other chemicals that are harmful to the environment and workers. Water-based paints have been developed that reduce emissions and cleanup. The paint and the equipment used to apply it is often expensive but the company saves in cleanup and worker protection costs.

Cost equalization point (CEP)

Knowing the quantity beyond which the cost of using method B becomes less than for method A enables the decision of which process to use to minimize the total cost (and the unit cost). This quantity is called the cost equalization point (CEP) and is the volume for which the total cost (and unit cost) of using one method is the same as another. (example on page 354)

Modularization

Modularization uses standardized parts for flexibility and variety. Standardization does not necessarily reduce the range of choice for the customer. By standardizing on component parts, a manufacturer can make a variety of finished goods, one of which will probably satisfy the customer. Automobile manufacturing is a prime example of this. Cars are usually made from a few standard components and a series of standard options so the consumer has a selection from which to choose. For example, the Mazda Miata contains 80% parts standard to other Mazda cars, which enables Mazda to produce the car quickly and at low cost, thus making a profit even though sales are comparatively small. Chrysler uses one platform, the basic frame of the vehicle, for all models of its minivan, so it has only one set of frame costs for all minivans. Modularization also permits the practice of postponement, as introduced in Chapter 1, where the components to manufacture the final product for the customer are made ahead of time. The final product is then configured to customer specifications once the order is placed. This reduces the lead time to the customer without the need for final product inventory

Maturity or saturation phase

Nearly everyone interested in the product has sampled or owns the product and sales begin to level off. The market is saturated, price competition is often severe and profits start to decline.

ISO 26000:2010 and 7 principles

Offers organization guidance for sustainability and social responsibility 7 principles: 1. Organization governance 2. Human rights 3. Labor practices 4. The environment 5. Fair operating practices 6. Consumer issues 7. Community involvement and development

What percentage do firms spend on the purchase of raw materials?

On the average, manufacturing firms spend about 50% of their sales dollars in the purchase of raw materials, components, and supplies. This gives the purchasing function tremendous potential to reduce costs and increase profits.

Teams

One of the features of CPI is team involvement. A team is a group of people working together to achieve common goals and objectives. The members of the team should be all those who are involved with the process. Teams are successful because of the emphasis placed on people. Not all problems can be solved by teams, nor are all people suited to teams. However, they are often effective, as problems often cross functional lines and thus multifunctional teams are common. Continuous process improvement can still be effectively carried out by the individuals

Process Design (processes)

Operations management is responsible for producing the products and services the customer wants, when wanted, with the required quality, at a desired cost, and with high effectiveness and productivity. Processes are the means by which operations management reaches these objectives. A process is a method of doing something, generally involving a number of steps or operations. Process design is the developing and designing of the steps.

Operations process charts

Operations process charts record in sequence only the main operation and inspections. They are useful for preliminary investigation and give a bird's-eye view of the process. Figure 14.11 shows such a chart. The description, and sometimes the times, for each operation is also shown. An operations process chart would be used to record product movement.

Offshoring

Outsourcing a business function to another company in a different country than the original company's country. This is a growing trend with many companies as lower labor costs and an increasingly educated workforce are becoming available offshore. Internet communications and efficient shipping methods can make outsourcing and offshore sourcing very attractive. Companies are under pressure to reduce costs and to focus on their core competencies, which can turn outsourcing into a competitive advantage.

Learning curve

Over time, as the operator does the tasks repetitively, speed will increase and errors decrease. This process is known as the learning curve and is illustrated in Figure 14.14. Note there is no time scale shown. Depending on the task, a worker may progress through the learning curve in a few minutes or, for high-skill jobs, several months or years.

Relationship between Lean, TQM, and ERP

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Summary of TQM

Page 429

Pareto analysis

Pareto analysis can be used to select problems with the greatest economic impact. The theory of Pareto analysis is the same as that used in the ABC analysis discussed in Chapter 9. This theory says that a few items (usually about 20%) account for most of the cost or problems. It separates the "vital few" from the "trivial many." Examples of the "vital few" are as follows: A few processes account for the bulk of scrap. A few suppliers account for most rejected parts. A few problems account for most process downtime.

Continuous process improvement (CPI)

People have always been concerned with how best to do a job and the time it should take to do it. Process improvement is concerned with improving the effective use of human and other resources. Continuous implies an ongoing activity; improvement implies an increase in the productivity or value of quality or condition. Hence, the name continuous process improvement (CPI). Continuous process improvement consists of a logical set of steps and techniques used to analyze processes and to improve them.

Performance measures should be:

Performance measures should be simple, easy for users to understand, relevant to the user, visible to the user, preferably developed by the user, designed to promote improvement, and few in number.

8 essential phases and responsibilities of 6 sigma projects

Phase 1: Recognize -> Responsibility: Management Phase 2: Define -> Responsibility: Management Phase 3: Measure -> Responsibility: Black Belts/Green Belts Phase 4: Analyze -> Responsibility: Black Belts/Green Belts Phase 5: Improve -> Responsibility: Black Belts/Green Belts Phase 6: Control -> Responsibility: Black Belts/Green Belts Phase 7: Standardize -> Responsibility: Management Phase 8: Integrate -> Responsibility: Management

Run charts

Plots of average of the samples. Gives visual description of what is happening with the process, but doesn't distinguish between random variation and assignable cause variation

Quality and product policy

Product planning involves decisions about the products and services that a firm will market. A product or service is a combination of tangible and intangible characteristics that a company hopes the customer will accept and be willing to pay a price for. Product planning must decide the market segment to be served, the level of performance expected, and the price to be charged, and it must estimate the expected sales volume. The basic quality level of a product is thus specified by senior management according to its understanding of the wants and needs of the market segment.

Improving productivity

Productivity can be improved by spending money (capital) on better and faster machines and equipment. However, with any given amount of capital, a method must be designed to use the machinery and equipment most productively. A workstation might consist of highly sophisticated machinery and equipment worth $1 million or more. Its productivity and return on investment depend on how the equipment is used and how the operator manages it. Continuous process improvement is a low-cost method of designing or improving work methods to maximize productivity. The aim is to increase productivity by better use of existing resources. Continuous process improvement is concerned with removing work content, not with spending money on better and faster machines. Peter Drucker has said, "Efficiency is doing things right; effectiveness is doing the right things." CPI aims to do the right things and to do them efficiently.

Products and processes summary

Products and the processes used to make them are continually being redesigned to create products more appealing to customers, to improve productivity, or to make the products and their associated processes friendlier to the environment. Producers follow well-established principles of product development. The 3Ss, simplification, standardization, and specialization, are very powerful principles that can help to improve productivity and make products more reliable. With information easy to share in today's environment, product design and process design can work simultaneously to bring better quality products to market faster and with reduced costs. As the design of the product is being established, the process is also being designed based on: the quality level desired, the ability of the process to react quickly to changes in customer demand (flexibility), the overall volume of demand, and how much the customer wants to be involved in the production of the product. Depending on the volume, the decision may be made to buy the product rather than make it, or to use one process rather than another. This is best determined with the cost equalization point (CEP), which determines a volume below which the low fixed cost, high variable cost alternative is used, and above which a company may invest in the high fixed cost and low variable cost alternative. Continuous process improvement (CPI) applies to all processes to make them more cost effective and competitive. It is done on an ongoing basis, not just when new products are introduced. CPI uses the traditional tools of the scientific methods in six steps: select, record, analyze, develop, implement, and maintain. All the steps have one thing in common and that is the involvement of people. With improvements to product and process, design goods tend to flow quickly and smoothly, resulting in lower costs and improved profits. Continuous improvement leads to the next chapter in this text on just-in time-and lean production.

Project processes (project manufacturing, fixed position layout)

Project manufacturing is mostly used for large, complex projects such as locomotives, ships, or buildings, and is typically a one-time endeavor, used to create a unique product or service. The product may remain in one location for its full assembly period known as a fixed position layout, as with a ship, or it may move from location to location after considerable work and time are spent on it. Project manufacturing avoids the very high costs of moving the product from one workstation to another. There are many variations and combinations of these three basic types of processes. Companies try to find the best combination to make their particular products. In any one company it is not unusual to see examples of all three being used.

Purchase Requisitions

Purchase requisitions start with the department or person who will be the ultimate user. In the material requirements planning (MRP) environment, the planner or buyer/planner releases a planned order authorizing the purchasing department to go ahead and process a purchase order. For items not used in the manufacturing process, such as maintenance, repair, and operating (MRO) items, office supplies, or capital equipment, a paper or electronic requisition is sent to the purchasing department. At a minimum, the purchase requisition contains the following information: -Identity of originator, signed approval, and account to which cost is assigned. -Material specification. -Quantity and unit of measure. -Required delivery date and place. -Any other supplemental information needed.

Purchasing

Purchasing can simply be considered the process of buying. Obtaining the right material, in the right quantities, with the right delivery (time and place), from the right source, and at the right price are all purchasing functions. Choosing the right material requires input from the marketing, engineering, manufacturing, and purchasing departments. Quantities and delivery of finished goods are established by the needs of the marketplace. However, manufacturing planning and control must decide when to order which raw materials so that marketplace demands can be satisfied. Purchasing is then responsible for placing the orders and for ensuring that the goods arrive on time. The purchasing department has the major responsibility for locating suitable sources of supply and for negotiating prices. Input from other departments may be required in finding and evaluating sources of supply and to help the purchasing department in price negotiation. Environmental responsibility is becoming a major consideration in business due to potential costs and consumer demand. Purchasing departments are in a position to take the lead role in reducing a company's environmental impact since they are familiar with all materials purchased and have excellent contacts with suppliers for product information.

Summary of Purchasing

Purchasing has always been an important function in any company, especially manufacturers who use a lot of raw materials or materials that are difficult to obtain. Purchasing needs to continue to get the right products at the right time and at the best price but, the function is changing. The steps in the purchasing cycle are still necessary but many manual activities such as writing POs, getting information on products, and communicating with suppliers have been sped up through use of the internet and computerization. The reduction in routine clerical activity allows time to take a more strategic view of the organization and have an increasing impact on profits. Viewing the supply chain as an integrated function, outsourcing, and lean production are three management influences that have encouraged purchasing to improve their relations with suppliers and to take a more active role in the scheduling and flow of products. Purchasing also has the opportunity to take a lead role in reducing the environmental impact of a company by working with suppliers and the use of environmentally friendly materials.

Attribute

Quality characteristics that either conform to specification or do not, within tolerance or not. Can't be measured but can be counted. Plotted using proportion defective or a p chart

Management commitment

Quality is a long-term investment. If senior management is not committed and involved, then TQM will fail. These managers must start the process and should be the first to be educated in the TQM philosophy and concepts. The chief executive officer and senior management should form a quality council or team whose purpose is to establish a clear vision of what is to be done, develop a set of long-term goals, and direct the program. The quality team must establish core values that help define the culture of the organization. Core values include such principles as customer-driven quality, continuous improvement, employee participation, and fast response. The team must also establish quality statements that include a vision, mission, and quality policy statement. The vision statement describes what the organization is striving to become 5 to 10 years in the future. The mission statement describes the function of the organization: who they are, who their customers are, what the organization does, and how it does it. The quality policy statement is a guide for all inside and outside the organization about how products and services will be provided. The three statements must be compatible in that the quality policy statement must fulfill the mission statement, which in turn should support the vision statement. Finally, the quality team must establish a strategic plan that expresses the TQM goals and objectives of the organization and how it plans to achieve them.

Quality

Quality means user satisfaction: that goods or services satisfy the needs and expectations of the user. To achieve quality according to this definition, companies must consider quality and product policy, product design, manufacturing, and final use of the product.

Reasons to make in-house and reasons to buy

Reasons to Make In-house: -Produces for less cost than a supplier. -Utilizes existing equipment to fullest extent. -Keeps confidential processes within control of the firm. -Maintains quality. -Maintains workforce. Reasons to Buy: -Requires less capital investment. -Uses specialized expertise of suppliers. -Allows the firm to concentrate on its own area of specialization. -Provides known and competitive prices. -Accommodates large changes in volume. The decision to make or buy is clear for many items such as nuts and bolts, motors, or components that the firm does not normally manufacture. For other items that are in the firm's specialty area, a specific decision will have to be made. As supply chains are becoming more tightly linked and sources of supply are becoming more global, the issue to buy (outsource) or make (insource) becomes more complex. For example, exchange rates, transit inventory levels, impact of transit time on lead time, and government controls are all becoming issues that need to be considered in making the decision to make or buy.

Mass customization (postponement)

Recent changes in process flexibility have allowed for the development of a concept called mass customization. If the operation is designed to be flexible and efficient enough, it will allow the production of customized products (specific to customer demand) at virtually the same cost as mass-produced product. Customization in general requires the ability to quickly redesign and produce a product or service based on customer need. In some cases, the customization can occur at the final stage, referred to as postponement, discussed in Chapter 1. Whatever type of customization is incorporated, the key is to design a product and process that combines flexibility, agility, and knowledge of customer needs.

Reduce

Reducing the use or generation of materials, whether hazardous or scrap, is the most environmentally friendly of the 3 Rs. The purchasing department, having direct contact with suppliers, is the first to learn of new environmentally friendly materials. Lead-free solder and water-based solvents are just two examples of materials that have been developed by suppliers to help their customers reduce their environmental impact and reduce their costs. Lean principles (discussed further in Chapter 15), when applied to suppliers, involves reducing waste for all stages of the supply chain. The use of returnable racks or packaging is widely used in many industries, reducing both costs and environmental impact. Suppliers should be consulted when developing material specifications to reduce costs by cutting waste or recommending bulk storage and handling systems.

Simplification

Simplification is the process of making something easier to do or make. It seeks to cut out waste by getting rid of needless product varieties, sizes, and types. The emphasis is not in cutting out products simply to reduce variety but to remove unnecessary products and variations. As well as reducing the variety of parts, product design can often be simplified to reduce operations and material costs. For example, the use of a snap-on plastic cap instead of a screw cap reduces the cost of both materials and labor.

Implement

So far, the work done by the analyst has been planning. Now the plans must be put into action by implementing the new procedure. In planning the implementation process, consideration must be given to the best time to implement, the method of implementation, and the people involved. The analyst needs to be sure that equipment, tooling, information, and the people are all available. At the time of implementation, a dry run will show whether all equipment and tooling are working properly. Training the operator is the most important part of the implementation process. If the operator has been involved in designing the change, this should not be difficult. The worker will be familiar and comfortable with the change and will probably feel some sense of ownership.

Final Selection of Supplier

Some factors in evaluating potential suppliers are quantitative, and a dollar value can be put on them. Price and landed cost are obvious examples. Other factors are qualitative and require some judgment to determine them. These are usually specified in a descriptive fashion. The supplier's technical competence might be an example. The challenge is finding some method of combining these two major factors that will enable a buyer to pick the best supplier. One method involves a supplier ranking method, as follows: Select those factors that must be considered in evaluating potential suppliers. Assign a weight to each factor. This weight determines the importance of the factor in relation to the other factors. Usually a scale of 1 to 10 is used. If one factor is assigned a weight of 5 and another factor a weight of 10, the second factor is considered twice as important as the first. When developing the factors and their weights, the buyer can use input from the people who will be affected by the supplier selection. This will help the buyer in making a more informed decision and will improve the acceptance of the new supplier by the users. Rate the suppliers for each factor. This rating is not associated with the weight. Rather, suppliers are rated on their ability to meet the requirements of each factor. Again, usually a scale of 1 to 10 is used. Rank the suppliers. For each supplier, the weight of each factor is multiplied by the supplier rating for that factor. For example, if a factor had a weight of 8 and a supplier was rated 3 for that factor, the ranking value for that factor would be 24. The supplier rankings are then added to produce a total ranking. The suppliers can then be listed by total ranking and the supplier with the highest ranking chosen. Figure 7.1 shows an example of this method of selecting suppliers. Supplier B has the highest total of 223; however, supplier D comes in a very close second with 222. The normal practice when using the ranking method is to eliminate the bottom ranking suppliers from consideration, allowing management to make a simpler decision. The supplier ranking method is an attempt to quantify those things that are not quantified by nature. It attempts to put figures on subjective judgment. It is not a perfect method, but it forces the buying company to consider the relative importance of the various factors. When the method includes the input of many people in determining the relative weights, agreement on the final selection will be improved.

cause and effect diagram (fishbone diagram)

Sometimes called a fishbone or Ishikawa diagram, the cause-and-effect diagram is a very useful tool for identifying root causes.

Special-purpose machinery

Special-purpose machinery is designed to perform specific operations on one work piece or a small number of similar work pieces. For example, a sewing machine built or equipped to sew shirt collars would be a special-purpose machine capable of sewing collars on any size shirt of any color but not capable of performing other sewing operations unless it was modified extensively. General-purpose machinery is generally less costly than special-purpose machinery. However, its run time can be slower, and because its operations often require more human input, the quality level tends to be more variable than when using special-purpose machinery. One exception is robotic machines, which automate the human aspect and tend to produce high quality on repetitive processes, but the cost is much higher. Special-purpose machinery is less flexible but parts can generally be produced with it much quicker than with general-purpose machinery.

Specialization

Specialization is concentration of effort in a particular area or occupation. Electricians, doctors, and lawyers specialize in their chosen fields. In product specialization, a firm may produce and market only one or a limited range of similar products. This leads to process and labor specialization, which increases productivity and decreases costs. With a limited range of products, productivity can be increased and costs reduced by: -Allowing the development of machinery and equipment specially designed to make the limited range of products quickly and cheaply. -Reducing the number of setups because of fewer task changes. -Allowing labor to develop speed and dexterity because of fewer task changes. Specialization is sometimes called focus and can be based either on product and market or on process.

Standard Specifications

Standard specifications have been developed as a result of much study and effort by governmental and nongovernmental agencies. They usually apply to raw or semifinished products, component parts, or the composition of material. In many cases, they have become de facto standards used by consumers and by industry. When SAE 10W30 motor oil is purchased for a car, a standard grade of motor oil is being specified as established by the Society of Automotive Engineers. Most of the electrical products purchased in the United States are manufactured to Underwriters Laboratory (UL) standards. There are several advantages to using standard specifications. First, they are widely known and accepted and, because of this, are readily available from most suppliers. Second, because they are widely accepted, manufactured, and sold, they are lower in price than nonstandard items. Finally, because they have been developed with input from a broad range of producers and users, they are usually adaptable to the needs of many purchasers. Market grades are a type of standard specification usually set by the government and used for commodities and foodstuffs. Eggs, for example, are purchased by market grade—small, medium, or large.

The International Organization for Standardization (ISO 9000:2015)

Standards intended to prevent nonconformities during all stages of business functions such as purchasing, invoicing, quality, and design

Supplier partnerships

Supplier partnerships are very important in both lean production and total quality management. It is in the company's best interest that suppliers are provided with clear requirements and paid fairly and on time, in order to provide quality goods and services. This applies to both external and internal suppliers within the organization

Supplier relationship management (SRM)

Supplier relationship management (SRM) is similar to CRM, with the focus for these activities being the building and maintaining of close, long-term relationships with key suppliers.

Shape (normal distribution)

Suppose, instead of measuring the diameters of 100 shafts, one measured the diameters of 10,000 shafts. If the distribution of the diameters of the 10,000 shafts were plotted, the results in Figure 16.3 would be smoothed out and there would be a curve as shown in Figure 16.4. As discussed in Chapter 11, this bell-shaped curve is called normal distribution and is encountered in manufacturing processes that are running under controlled conditions. This curve exists in virtually all natural processes, from the length of grass on a lawn, to the heights of people, to student grades. Data tends to be distributed equally around a central value, with no bias to the left or right.

Benchmarking

Systematic method by which organization can compare their performance in a particular process to that of a "best-in-class" organization, finding out how that organization achieves those performance levels and applying them to their own organization

Quantity Requirements

The balance of supply and demand determines the quantity needed. The quantity is important because it will be a factor in the way the product is designed, specified, and manufactured. For example, if the demand was for only one item, it would be designed to be made at the least cost, or a suitable standard item would be selected. However, if the demand were for several thousand, the item would be designed to take advantage of economies of scale, thus satisfying the functional needs at a better price.

Economic considerations

The cost of the improvement must be justified. The cost of doing the study and implementing the improvement must be recovered from the savings in a reasonable time. One to two years is a commonly used period. The job size must justify the study. Almost anything can be improved, but the improvement must be worthwhile. Suppose a process improvement saves 1 hour on a job taking 5 hours, performed once a month or 12 times a year. The reduction in time is 20% and the total time saved in a year is 12 hours. Another process improvement saves 1 minute on a job taking 10 minutes, performed 200 times per week. The time saved in this case is only 10% but will be 173 (1×200×52÷60=173.3) hours per year, a much higher rate of return on the investment made in the study.

Costs of controlling quality (prevention costs, appraisal costs)

The costs of controlling quality can be broken down into the following: -Prevention costs are the costs of avoiding poor quality by doing the job right in the first place. They include training, statistical process control, machine maintenance, design improvements, and quality planning costs. -Appraisal costs are the costs associated with checking and auditing quality in the organization. They include product inspection, quality audits, testing, and calibration. Investment in prevention will improve productivity by reducing the cost of failure and appraisal. Figure 16.2 shows the typical pattern of quality costs before and after a quality improvement program. Investing in prevention will increase total costs in the short run, but in the long run, prevention will eliminate the causes of failure and reduce total quality costs.

Cost of failure (Internal failure costs, External failure costs)

The costs of failing to control quality are the costs of producing material that does not meet specifications. They can be broken down into the following: -Internal failure costs are the costs of correcting problems that occur while the goods are still in the production facility. Such costs are scrap, rework, and spoilage. These costs would disappear if no defects existed in the product before shipment. -External failure costs are the costs of correcting problems after goods or services have been delivered to the customer. They include warranty costs, field servicing of customer goods, replacement goods, and all the other costs associated with trying to satisfy customer complaints. External failure costs can be the most costly of all if the customer loses interest in a company's product. These costs would also disappear if there were no defects.

Environmentally Responsible Purchasing

The fifth category of purchasing objectives introduced at the beginning of this chapter is the objective for purchasing departments to minimize the impact their organization has on the environment, that is, environmentally responsible purchasing. Purchasing is responsible for managing waste products in most organizations since they have: First-hand knowledge of price trends for waste products. Contact with salespeople who are an excellent source of information as to possible uses of waste material. Familiarity with the company's own needs, or uses for materials within the organization. Knowledge of legislation involving the transportation and handling of environmentally sensitive materials. Reduce, Reuse, and Recycle is a widely used phrase to guide people in lowering the impact they have on the environment. Properly understood and implemented, the 3 Rs can also reduce expenses and increase profits.

The steps in developing a fishbone diagram

The fishbone diagram is best used by a group or team working together. It can be constructed by discussion and brainstorming. The steps in developing a fishbone diagram are as follows: 1. Identify the problem to be studied and state it in a few words. For example, the reject rate on machine A is 20%. 2. Generate some ideas about the main causes of the problem. Usually all probable root causes can be classified into six categories. -Materials. For example, from consistent to inconsistent raw materials. -Machines. For example, a well-maintained machine versus a poorly maintained one. -People. For example, a poorly trained operator instead of a well-trained one. -Methods. For example, changing the speed on a machine. -Measurement. For example, measuring parts with an inaccurate gauge. -Environment. For example, increased dust or humidity. 3. Brainstorm all possible causes for each of the main causes. 4. Once all the causes have been listed, try to identify the most likely root causes and work on these.

Human considerations (the human factor)

The human factor governs the success of continuous improvement. The resistance to change, by both management and worker, must always be remembered. Working situations characterized by high fatigue, accident hazards, absenteeism, and dirty and unpleasant conditions should be identified and improved. Sometimes it is difficult to give specific economic justification for such improvements, but the intangible benefits are extensive and should weigh heavily in selecting studies.

Observe

The important feature in observation is a questioning attitude. Questions such as why, when, and how must be asked whenever something is observed. This attitude needs development because people tend to assume that the familiar method is the only one. Often heard is, "We have always done it this way!" However, "this way" is not necessarily the only, most productive, or most effective way. Any situation can be improved but some have better potential than others. Indicators in manufacturing that show areas most needing improvement include: -High scrap, reprocessing, rework, and repair costs. -Backtracking of material flow caused by poor plant layout. -Bottlenecks. -Excessive overtime. -Excessive manual handling of materials, both from workplace to workplace and at the workplace. -Use of environmentally hazardous materials. -Employee grievances without true assignable causes

Reuse

The next most effective step is to reuse materials wherever possible. Scrap from one process may be reused directly within the organization or can be slightly processed for reuse in another process. Corrugated cartons can be slit and crushed for use as packing material in the shipping department. Many manufactured products are cut from a continuous sheet resulting in waste material. However, smaller products can often be nested between the cut-outs to make other, smaller products, reducing the need for raw materials and also the amount of material to be sent for disposal. Another category of reuse is by-products, which are saleable products made from what was previously considered waste. It was not too long ago that butchers had to find a use for a nonsaleable product, chicken wings! An example from the food packaging industry is the shipping of glass jars in boxes preprinted with finished product artwork. The empty jars are removed from their containers as they enter the cleaning and filling station. The empty boxes are sent to the end of the filling process, where the finished product is placed in the boxes. A final description and batch code are then printed on each box. The company never has to deal with the handling and disposal of the boxes used to ship the empty jars. The boxes have two uses: the shipment from glass manufacturer to the food processor and from the food processor as finished product.

Record

The next step is to record all the facts relating to the existing process. To be able to understand what to record, it is necessary to define the process being studied. Recording defines the process. The following must be determined to properly define the process. -The process boundaries. All processes, big or small, begin and end somewhere. Starting and ending points form the boundaries of the process. For example, the starting point in the process of getting to work in the morning might be getting out of bed. The ending point might be arrival at the desk or classroom. -Process flow. This is a description of what happens between the starting and ending points. Usually this is a listing of the steps taken between the start and finish of the process. There are several recording techniques to help perform this step. Some of these will be discussed later in this chapter. -Process inputs and outputs. All processes change something. The things that are changed are called inputs and they may be physical, such as raw materials, or informational, such as data. Outputs are the result of what goes on in the process. For example, raw materials are converted into something more useful or data is manipulated to produce reports. -Components. Components are the resources used in changing inputs to outputs. They are composed of people, methods, and equipment. Unlike process inputs, components do not become part of the output but are part of the process. For example, in producing a report, the graphics program, computer, and printer are all components. -Customer. Processes exist to serve customers and customers ultimately define what a process is supposed to do. If customer needs are not considered, there is a risk of improving things that do not matter to the users of the output. -Suppliers. Suppliers are those who provide the inputs. They may be internal to the organization or external. -Business environment. The process is controlled or regulated by external and internal factors. The external factors are beyond the firm's control and include customers' acceptance of the process output, competitors, and government regulation. Internal factors are within the organization and can be controlled. The next step is to record all facts relating to the existing method. A record is necessary because it is difficult to record and maintain a large mass of detail by memory for the duration of the analysis. Recording helps the team consider all elements of the problem in a logical sequence and makes sure all the steps in the process are considered. The record of the present method also provides the basis for both the critical examination and the development of an improved method.

Selecting Suppliers

The objective of purchasing is to get all the right things together: quality, quantity, delivery, and price. Once the decision is made about what to buy, the selection of the right supplier is the next most important purchasing decision. A good supplier is one that has the technology to make the product to the required quality, has the capacity to make the quantities needed, and can run the business well enough to make a profit and still sell a product competitively.

Increasing volume

The obvious way to increase volume is to increase sales. However, a finished product is usually made up of several purchased or manufactured components. If the volume of these components can be increased, then the unit cost of the components, and the final product, will be reduced. The volume of components can be increased without increasing sales by a program of simplification and standardization, discussed previously in this chapter. If a subassembly or component part can be standardized for use in more than one final product, then the volume of the subassembly or part is increased without an increase in the total sales volume. Thus, more specialized and faster-running processes can be justified and the cost of operations reduced. Standardization of parts is a major characteristic of modern mass production. At the turn of the twentieth century, Henry Ford revolutionized manufacturing by standardizing the finished product—one model of car. The joke often heard then was that you could have any color you wanted as long as it was black. Today a vast range of models are made, but if each model was exploded into its subassemblies and component parts, one would find specific components common to a great number of models. In this way, modern manufacturers can provide the consumer with a wide choice of finished products made from standard parts and components.

Patterns of variability (sampling)

The output of every process has a unique pattern that can be described by its shape, center, and spread. To determine the distribution or pattern of variability, a statistical process known as sampling is used to distribute values of a large amount of data using a relatively small number of observations, or samples of a given size.

Price Requirements

The price specification represents the economic value that the buyer puts on the item, and the amount the company is willing to pay. If the item is to be sold at a low price, the manufacturer will not want to pay a high price for a component part. The economic value placed on the item must relate to the use of the item and its anticipated selling price.

Low-cost processing

The product must be designed so it can be made at least cost. The product designer specifies materials, tolerances, basic shapes, methods of assembling parts, and so on and, through these specifications, sets the minimum product cost. Usually, many different designs will satisfy functional and appearance specifications. The job then is to pick the design that will also minimize manufacturing cost. Poor design can add cost to processing in several ways: -The product and its components may not be designed to be made using the most economical methods impossible. -Parts may be designed so excessive material has to be removed. -Parts may be designed so operations are difficult. -Lack of standardized components may mean batches of work have to be small. Using standard parts across a range of products reduces the number of parts in inventory, tooling, and operator training and permits the use of special-purpose machinery. All this reduces product cost. -Finally, product design can influence indirect costs such as production planning, purchasing, inventory management, and inspection. For example, one design may call for twenty different nonstandard parts, whereas another uses fifteen standard parts. The effort required to plan and control the flow of materials and the operations will be greater, and more costly, in the first case than the second, due to additional risks of shortages and dealing with many parts and suppliers.

Functional

The product will be designed to perform as specified in the marketplace. The marketing department produces a market specification laying down the expected performance, sales volume, selling price, and appearance values of the product. Product design engineers design the product to meet the market specifications. Engineers establish the dimensions, configurations, and specifications so the item, if properly manufactured, will perform as expected in the marketplace.

Product design and quality level

The product's design determines the basic processes needed to convert the raw materials and components into the finished product. For example, if a steak is to be barbecued, then the process must include a barbecue operation. The process designer can usually select from a variety of different machines or operations to do the job. The type of machine or operation selected will depend upon the quantity to be produced, the available equipment, and the quality level needed. The desired quality level affects the process design because the process must be capable of achieving that quality level and doing it repeatedly. If the process cannot do that, operations will not be able to produce what is wanted except with expensive inspection and rework. The process designer must be aware of the capabilities of machines and processes and select those that will meet the quality level at least cost.

Following up and Delivery

The purchasing department is responsible for ensuring that suppliers deliver the items ordered on time. If there is doubt that delivery dates can be met, purchasing must be notified in time to take corrective action. This might involve expediting transportation, alternate sources of supply, working with the supplier to solve its problems, or rescheduling production. The purchasing department is also responsible for working with the supplier on any changes in delivery requirements. Demand for items changes with time, and it may be necessary to expedite certain items or push delivery back on some others. The buyer must keep the supplier informed of the true requirements so that the supplier is able to provide what is wanted when it is wanted. Outputs from MRP provide messages when items have been re-prioritized, so that the buyer can determine what action is necessary.

Select

The purpose of continuous process improvement is to improve productivity to reduce operating, product, or service costs. In selecting jobs or operations for method improvement, there are two major considerations: economic and human.

Break-Even Point

The sum of the fixed and variable costs is labeled Total Cost on the graph. The third line represents the sales revenue. Where this line intercepts the total cost line, revenue equals total cost, and profit is zero. This is called the break-even point. When the volume is less than the break-even point, a loss is incurred; when the volume is greater, a profit is realized. The break-even point occurs where the revenue equals the total cost.

Variable costs

These are costs that vary with the quantity produced. Direct labor (labor used directly in the making of the product) and direct material (material used directly in the product) are the major variable costs.

Basis for Pricing (Fair Price, Fixed Costs, Variable Costs)

The term fair price is sometimes used to describe what should be paid for an item. But what is a fair price? One answer is that it is the lowest price at which the item can be bought. However, there are other considerations, especially for repeat purchases where the buyer and seller want to establish a good working relationship. One definition of a fair price is one that is competitive, gives the seller a profit, and allows the buyer ultimately to sell at a profit. Sellers who charge too little to cover their costs will not stay in business. To survive, they may attempt to cut costs by reducing quality and service. In the end, both the buyer and seller must be satisfied. Since the objective is to pay a fair price and no more, it is good to develop some basis for establishing what a fair price is. Prices have an upper and a lower limit. The market decides the upper limit, as what buyers are willing to pay is based on their perception of demand, supply, and their needs. The seller sets the lower limit, and it is determined by the costs of manufacturing and selling the product and profit expectation. If buyers are to arrive at a fair price, they must develop an understanding of market demand and supply, competitive prices, and the methods of arriving at a cost. One widely used method of analyzing costs is to break them down into fixed and variable costs. Fixed costs are costs incurred no matter the volume of sales. Examples are equipment depreciation, taxes, insurance, and administrative overhead. Variable costs are those directly associated with the amount produced or sold. Examples are direct labor, direct material, and commissions of the sales force.

Impact of Material Requirements Planning on Purchasing

The text in this chapter has described the traditional role and responsibilities of purchasing. This section will study the effect material requirements planning has on the purchasing function and the changing role of purchasing. Purchasing can be separated into two types of activities: (1) procurement and (2) supplier scheduling and follow-up. Much of what has been covered in this chapter is in the area of procurement. Procurement includes the functions of establishing specifications, selecting suppliers, price determination, and negotiation. Supplier scheduling and follow-up are concerned with the release of orders to suppliers, working with suppliers to schedule delivery, and follow-up. The goals of supplier scheduling are the same as those of production activity control: to execute the master production schedule (MPS) and the material requirements plan (MRP), ensure good use of resources, minimize work-in-process inventory, and maintain the desired level of customer service.

Total Landed Cost

The total landed cost of an item includes the price paid plus all the handling and delivery costs associated with getting the product to production. A buyer will often get a price and per unit transportation discount by ordering in larger quantities. However, the total cost may increase when the costs of storage and inventory are included.

Miscellaneous Attributes

There are a variety of other methods of specification, including the famous phrase, "Give me one just like the last one. Sometimes samples are used, for example, when colors or patterns are to be specified. Often a variety of methods can be used, and the buyer must select the best one. The method of description is determined by communication with the supplier. How well it is done will affect the success of the purchase and sometimes the price paid.

Description by Specification

There are several ways of describing a product, but whatever method is used, description by specification depends on the buyer describing in detail exactly what is wanted. One or more of the following is typically used: -Physical and chemical characteristics. The buyer must define the physical and chemical properties of the materials wanted. Petroleum products, pharmaceuticals, and paints are often specified in this way. -Material and method of manufacture. Sometimes the method of manufacture determines the performance and use of a product. For example, hot- and cold-rolled steels are made differently and have different characteristics. -Performance. This method is used when the buyer is primarily concerned with what the item is required to do and is prepared to have the supplier decide how performance is to be attained. For example, a water pump might be specified as having to deliver so many gallons per minute. Performance specifications are relatively easy to prepare and take advantage of the supplier's special knowledge. Whatever the method of specification, there are several characteristics of description by specification: -To be useful, specifications must be carefully designed. If they are too loosely drawn, they may not provide a satisfactory product. If they are too detailed and elaborate, they are costly to develop, are difficult to inspect, and may discourage possible suppliers. -Specifications must allow for multiple sources and for competitive bidding. -If performance specifications are used, the buyer is assured that if the product does not give the desired results, the seller is responsible. They provide a standard for measuring and checking the materials supplied. -Not all items lend themselves to specification. For example, it may not be easy to specify color schemes or the appearance of an item. -An item described by specification may be no more suitable, and a great deal more expensive, than a supplier's standard product. -If the specifications are set by the buyer, they may be expensive to develop. They will be used only when there is sufficient volume of purchases to warrant the cost or where it is not possible to describe what is wanted in any other way.

Sourcing

There are three types of sourcing: sole, multiple, and single. -Sole sourcing implies that only one supplier is available because of patents, technical specifications, raw material, location, and so forth. -Multiple sourcing is the use of more than one supplier for an item. The potential advantages of multiple sourcing are that competition will result in lower price and better service and that there will be a continuity of supply. -Single sourcing is a planned decision by the organization to select one supplier for an item when several sources are available. It is intended to produce a long-term partnership.

Process costing (job costing)

There are two common methods for determining product costs. Job costing is used when multiple products are produced within a period, and costs such as labor, material, and overhead are allocated to each product. The other method is process costing, which is most commonly used in industries that manufacture product in a continuous process, such as paper, petroleum, or concrete. In these process industries, it is impossible to allocate specific costs for a period to a specific lot, as the flow is continuous. Materials, labor, and overhead consumed during a particular period are accumulated, and then allocated to departments or operations, rather than a specific product. Overall product cost can be determined by summing the accumulated costs, and then dividing that by the volume of products produced during the time period.

Fixed costs

These are costs that do not vary with the volume being produced. Purchase costs of machinery and tools and setup costs are considered fixed costs. No matter what volume is produced, these costs remain the same. Suppose it costs $200 to set up a process; this cost will not change no matter how much is produced.

Bullwhip Effect

This effect occurs when there is uncertainty in the supply chain based on the use of forecasts, and that uncertainty is then exaggerated as material moves through the supply chain. The effect can produce large fluctuations in demand for raw materials based on relatively small changes in demand from the customer end of the supply chain. This is illustrated in Figure 7.3. A small fluctuation at the customer causes a ripple effect as the change passes through each node of the supply chain, exaggerated by lead times and differences in lot sizes. Managing the supply chain with visibility of data (information flow) and building flexibility and agility across the supply chain, can substantially reduce large fluctuations.

Recycle

This is the most public and least effective of the 3 Rs, yet purchasing can maximize the benefits of recycling through good management. Suppliers are often the best source of information on the disposal of scrap materials and often will buy materials back for reprocessing. This does require good management to keep materials in their most useful form. Some liquids, notably chlorinated solvents, are difficult to dispose of. They should be kept separate from other valuable liquids, such as used machine oils. Contamination of a waste stream can turn the resale of a valuable waste product into an expense and should be avoided at all costs. All materials destined for recycling should be kept separate from other materials where possible.

Determining the Right Price

This is the responsibility of the purchasing department and is closely tied to the selection of suppliers. The purchasing department is also responsible for price negotiation and will try to obtain the best price from the supplier.

Introduction Phase

This phase is the most expensive and risky stage. To get customer acceptance of the product, the firm will usually spend heavily on advertising and sales promotion, hoping these costs will be recovered in future sales. If the introduction fails, the firm loses money, a fact that underlines the importance of thoroughly researching a new product before introducing it.

Continuous Process Improvement (deming circle AKA plan, do, check, act cycle, PDCA)

This topic, an element in both lean production and TQM, was discussed in detail in Chapter 14. Quality can and must be managed, and requires continuous process improvement. If a product is excellent in one dimension, such as performance, then improved quality in another dimension should be sought. A company should never be completely satisfied, as there are always methods that can be improved. This involves working smarter, not harder, by examining the source of problems and removing them. In addition to the steps previously outlined in this text, many companies use the Deming circle, also known as the Plan, Do, Check, Act cycle (PDCA) to drive continuous improvement. These steps are: 1. Plan. Create a plan for the change, define the steps needed and predict the results. 2. Do. Carry out the plan, often in a test environment. 3. Check. Examine the results and verify that the process was improved. If not, try again. 4. Act. Implement the changes that were verified in the previous step.

Simultaneous Engineering (Concurrent Engineering)

To design products for low-cost manufacture requires close coordination between product design and process design, which is called simultaneous or concurrent engineering. If the two groups can work together, they have a better chance of designing a product that will function well in the marketplace and can be manufactured at least cost. This relationship between product design and process design can determine the success or failure of a product. If a product cannot be produced at a cost that will allow a profit to be made, then it is a failure for the firm. The traditional approach to product and process design has been a little like a relay race. When the product design was finished, the work would move to process design and that department would figure out how to make it. This system has proved time consuming and expensive and leads to less efficient outcomes. Figure 14.2 shows, with some humor, what can happen without strong communication and interaction between all parties in the product development cycle. Today, many organizations concurrently develop the design for the product and the processes used to make it. Often a team is made up of people from product design, process design, quality assurance, production planning and inventory control, manufacturing, purchasing, marketing, field service, and others who contribute to, or are affected by, the delivery and use of the product to the customer. These groups work together to develop the product design so it meets the needs of the customer and can be made, delivered to the customer, and serviced cost-effectively.

Spread (range, standard deviation)

To evaluate a process, one must know not only what the center of the distribution is but also something about the spread or variation. In statistical process control there are two methods of measuring this variation: the range (the difference between the largest and smallest values in the sample) and the standard deviation (may be thought of as the "average spread" around the center. A distribution with a high standard deviation is "fatter" than one with a low standard deviation. Higher-quality products have little variation (a low standard deviation) In cases where the population of items is very large, it is very difficult to actually measure the entire population. In those cases a large number of samples from the population is often taken. Then the mean of the sample means is calculated by adding all the sample means and dividing by the number of samples. Depending on the sample size (larger sample sizes tend to be better), the mean of the sample means can be used to approximate the population mean, and the standard deviation of the sample means will equal the population sample mean divided by the square root of the sample size.

Quality and use

To the user, quality depends on an expectation of how the product should perform. This is sometimes expressed as "fitness for use." Customers do not care why a product is defective, but they care if it is defective. The customer may need some introduction to the proper use of a product or feature, especially with new products. A good example of this is a feature required on some new cars that turns off the daytime running light when its adjacent turn signal is activated. This is a safety feature that improves the visibility of the signal but customers, unaware of that design feature, thought their vehicles had a defect in the lighting. It was recommended that the manufacturer improve the wording in the owner's manual and introduce this improvement to the customer when purchasing the vehicle. If the product has been well conceived, well designed (meets customer needs), well made, well priced, and well serviced, then the quality is satisfactory. If the product exceeds the customer's expectations, that is superb quality.

Customer focus (requirements of suppliers)

Total quality management implies an organization that is dedicated to delighting the customer by meeting or exceeding customer expectations. It means not only understanding present customer needs but also anticipating customers' future needs. A customer is considered to be a person or organization who receives products or services. There are two types of customers: external and internal. External customers exist outside the organization and purchase goods or services from the organization. Internal customers are persons or departments who receive the output from another person or department in an organization. Each person or operation in a process is considered a customer of the preceding operation. If an organization is dedicated to delighting the customer, internal suppliers must be dedicated to delighting internal customers. Customers have six requirements of their suppliers: 1. High quality level. 2. High flexibility to change such things as volume, specifications, and delivery. 3. High service level. 4. Short lead times. 5. Low variability in meeting targets. 6. Low cost. Customers expect improvement in all requirements. These requirements are not necessarily in conflict. Low cost and high flexibility, for example, do not have to be trade-offs if the process is designed to provide them.

Contract Buying

Usually an MRP system generates frequent orders for relatively small quantities. This is particularly true for components that are ordered lot-for-lot. It can be costly, inefficient, and sometimes impossible to issue a new purchase order for every weekly requirement. The alternative is to develop a long-term contract with a supplier and to authorize releases against the contract. Often suppliers are given a copy of the material requirements plan so they are aware of future demands. The buyer then issues a release against the schedule. This approach is efficient and cost-effective but requires close coordination and communication with the supplier. Again, contract buying can be managed very well by a planner/buyer.

Value Analysis

Value analysis as defined by APICS Dictionary, 14th edition is "the systematic use of techniques that identify a required function, establish a value for that function, and finally provide that function at the lowest overall cost." Teams of engineers, users, production personnel, and suppliers analyze parts to challenge current specifications and identify redundant or unnecessary features. This form of supply chain collaboration during the design process can be instrumental in reducing the cost and, more importantly, improving the overall functionality of the part. A good example of value analysis is the evolution of the milk bottle as it went from a heavy glass bottle to a plastic jug. The result is a much cheaper package with improvements in sterility, transportation, and breakage.

Environmental or Green Sensitivity

When designing products, there are several environmental issues that should be included or considered. One of these issues concerns the materials and processes used. Similar to reverse logistics, consideration should be given as to whether materials or packaging can be: -Reduced to efficiently use resources. -Designed to reduce consumption of energy during the manufacturing process. -Easily separated for reuse. -Recycled. If not, the company should question if they can make alternative choices that could be less harmful to the environment. Many of these environmental concerns come under the overall term sustainability. As discussed in Chapter 2, sustainability includes issues of being a responsible community "citizen" and being ethical in the approach to doing business.

Develop

When developing possible solutions, there are four approaches to take to help develop a better method. -Eliminate all unnecessary work. Question why the work is being done in the first place and if it can be eliminated. -Combine operations wherever possible. Thus, material handling will be reduced, space saved, and the throughput time reduced. This is a major thrust of lean manufacturing. -Rearrange the sequence of operations for more effective results. This is an extension of the previous approach. If sequences are changed, then they can possibly be combined. -Simplify wherever possible by making the necessary operations less complex. If the questioning attitude is used, then complexity should be reduced. Usually the best solutions are the simple ones.

Receiving and Accepting Goods

When the goods are received, the receiving department inspects the goods to be sure the correct items have been sent, are in the right quantity, and have not been damaged in transit. The receiving department then accepts the goods. Variances are noted manually on the packing slip, or automatically calculated using the receiving software. Provided the goods are in order and require no further inspection, they will be sent to the requisitioning department or to inventory. If further inspection is required, such as by quality control, the goods are sent to quality control or held in receiving for inspection. If the goods are received damaged, the receiving department will advise the purchasing department and hold the goods for further action. Purchasing is notified once the goods have either been inspected or rejected. Purchasing is then responsible for notifying the supplier and determining the action necessary to return and/or replace the items. A copy of the receiving report is provided to the purchasing department, noting any variance or discrepancy from the purchase order. If the receipt completes the purchase order, it is closed and no longer available for receiving. If the purchase order has not been received complete, either due to quantities remaining or additional line items, the purchase order remains open.

Approving Supplier's Invoice for Payment

When the supplier's invoice is received, there are three pieces of information that are matched: the purchase order, the receiving report, and the invoice. The items and the quantities should be the same on all; the prices, and extensions to prices, should be the same on the purchase order and the invoice. All discounts and terms of the original purchase order must be checked against the invoice. It is the job of the purchasing department to work with accounts payable to verify these and to resolve any differences. Once approved, the invoice is sent to accounts payable for payment.

Center AKA mean (arithmetic mean) =

sum of observations/# of observations