supply chain 8

Efficient Consumer Response (ECR)

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

Lean results in

Large cost reductions Improved quality Increased customer service

Value Added Process

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

The Seven Elements of LEAN Manufacturing

Waste Reduction LEAN Layouts Inventory, Setup Time, & Changeover Time Reduction Small Batch Scheduling and Uniform Plant Loading LEAN Supply Chain Relationships Workforce Empowerment Continuous Improvement

Just-in-Time (JIT)

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

Most common ways of successful implementation of LEAN and Six Sigma

implementations begin with Lean, reducing waste, and using value stream mapping to make the workplace as efficient and effective as possible. Typically this is followed by implementing the more technical Six Sigma statistical tools to resolve process problems. Both Lean and Six Sigma require strong management support to incorporate these principles into the standard way of doing business.

Assemble-to-Order (ATO)

A manufacturing strategy where products ordered by customers are produced quickly and customizable to a certain extent. 1. ATO requires basic parts for a product are already manufactured but not yet assembled. 2. Once an order is received, the parts are assembled quickly and sent to the customer.

Engineer-to-Order (ETO

A process in which the component is designed, engineered, and built to specifications after the order has been received. A dramatic evolution of a Make-to-Order supply chain.

What is Six Sigma

A quality management process: Six Sigma improves quality of process outputs by identifying and removing the causes of defects minimizing variability in manufacturing and business processes. The goal of Six Sigma is to attain less than 3.4 Defects Per Million Opportunities (DPMO) Six Sigma is a structured and data-driven approach to drive a near-perfect quality goal, i.e., "Zero Defects"

Make-to-Order (MTO)

A strategy that allows customers to purchase products customized to their specifications. MTO only manufactures end products once the customer places the order, this creates additional wait time for the consumer to receive a product but allowing customization relieves problems of excessive inventory common with Make-to-Stock strategy. MTO is not appropriate for all types of products. It is appropriate for highly configured products such as computer servers, aircraft.

Seven Tools of Quality Control

Check Sheets Cause and Effect Diagrams Control Charts Histograms Pareto Analysis Scatter Diagrams Stratification (Flow Diagrams)

Continuous Improvement (Kaizen)

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

Inventory, Setup Time, & Changeover Time Reduction

Some inventory may be necessary, but excess inventory is a waste Excess inventory takes up space, and costs money to hold, maintain, protect, secure, and insure. It ties up financial capital which could be used for other aspects of the business. Reducing inventory levels can free up capital and reduce holding costs. There is less waste being created by obsolescence, spoilage, or damage with lower inventory levels

Lean History

Starting 1910's, Henry Ford's mass production line was first using continuous assembly and flow systems that made parts find their way into finished products Video: Ford Model T - 100 Years Later (5 mins) In the 1940's, Taichii Ohno and Shigeo Shingo created the Toyota Production System (TPS), which incorporated Ford's production system forming what is now known as LEAN. The term LEAN was by John Krafcik in 1988 and the definition expanded in the 1990 book, The Machine that Changed the World.

Malcolm Baldrige National Quality Award Objectives

Stimulate firms to improve Recognize firms for quality achievements Establish guidelines so that organizations can evaluate their improvement and provide guidance to others

LEAN Supply Chain Relationships

Suppliers and customers work to remove waste, reduce cost, and improve quality and customer service JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities Firms develop lean supply chain relationships with key customers. Mutual dependency and benefits occur among these partners.

Traditional approach to Supply chain

Supply chains work as "push" systems Inventory carried to cover up problems

Voice of the Customer (VOC)

Voice of the Customer (VOC) is a term used in business to describe the in-depth process of capturing internal and external customer's stated and unstated expectations, preferences, likes, and dislikes. TQM is all about meeting or exceeding customer expectations, so capturing the Voice of the Customer is essential for TQM to be successful.

Acceptance Sampling

When a shipment is received from a supplier, a statistically significant representative sample is taken and measured against the quality acceptance standard. The entire shipment is assumed to have the same quality as the representative sample that was taken. Sampling is less time-consuming than testing every unit but can result in errors: Supplier's Risk:Supplier's Risk: Buyers's Risk:

Role of Workers

Workers performing different tasks and actively pursuing company goals: Worker duties Improve production process Correct quality problems Monitor quality Work in Teams Quality circles

Six Sigma Certification levels

Yellow belt green belt brown belt black belt master black belt

Prevention Costs

are costs are associated with the design, implementation, and maintenance of the quality management system. They are planned, and experienced before actual products or materials are acquired or produced. Establishment of specifications for incoming materials, processes, products, and services Creation of quality plans Quality training - development, preparation, and maintenance of programs Creation and maintenance of the quality system

Appraisal Costs

are costs are associated with the evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications. They include: Testing, evaluating, and inspecting the quality of incoming materials, process setups, and products, against agreed upon specifications. Quality assessment and approval of suppliers. Performing audits to confirm that the quality system is operating properly.

Internal Failure Costs

are costs that occur when the product or service does not meet the designed quality standards, and are identified before the product or service is delivered to the customer. They include: Defective product or material that cannot be used, sold, or repaired, and the costs associated with correction of these defects. Unnecessary work or inventory resulting from errors. Activities required to establish the root causes of product or service failures.

Lean reverses problems with large bathes by

small batch scheduling. Smaller batches facilitate producing at the same rate as customer demand. Small batches creates a smooth workload as production can synchronize with customer demand, creating a pull system. It increases flexibility allowing a response to changes in customer demands more quickly. Throughput times in manufacturing go down, and Work-in-Process inventory goes down, reduce costs and eliminating waste in the system. The company can also get the product to the customer more quickly. Shortens manufacturing lead time and the actual time it takes to produce a product, however, setup time must be low so that it is easy to switch from producing one type of product to another.

Cost of Quality

Cost of Quality is an approach that supports a company's efforts to determine the level of resources necessary to prevent poor quality, and to evaluate the quality of the company's products and services. Any cost that would not have occurred if quality was perfect, contributes to the cost of quality. This information will help a company to determine the benefits and savings generated by potential process improvements.

W Edwards 14 points

Create constancy of purpose to improve product and service Adopt the new philosophy Cease dependence on inspection to improve quality End the practice of awarding business on the basis of price Constantly improve the production and service system Institute training on the job Institute leadership Drive out fear Break down barriers between departments Eliminate slogans and exhortations Eliminate quotas Remove barriers to pride of workmanship Institute program of self-improvement Put everyone to work to accomplish the transformation

master black belt

Is a career path. A Master Black Belt has successfully led ten or more teams through complex Six Sigma projects. A proven change agent, leader, facilitator, and technical expert in Six Sigma. A seasoned individual with a proven mastery of process variability reduction, and waste reduction. Acts as an advisor to executives, and a coach and mentor on projects that are led by black belts and green belts. Functions as the keeper of the Six Sigma process, and can effectively provide Six Sigma training at all levels

Three elements of Lean

LEAN Manufacturing Total Quality Management Respect for People

Role of Supplier

LEAN builds long-term supplier relationships: Partner with suppliers. Improve process quality. Information sharing. Goal to have single-source suppliers.

How do LEAN and Six Sigma

LEAN focuses on eliminating wastes and improving efficiency Six Sigma focuses on reducing defects and variations LEAN + Six Sigma Faster (speed) and Better (accuracy) In general Both are philosophies - mindsets

Malcolm Baldrige National Quality Award Categories Measured

Leadership Strategic Planning Customer and Market Focus Information and Analysis Human Resource Focus Process Management Business Results

Implementing LEAN and Six Sigma

Lean and Six Sigma are complementary principles providing the customer with the best possible quality, cost, and delivery. There is significant overlap, but the two initiatives approach their common purpose from somewhat different angles: Lean focuses on waste reduction, whereas Six Sigma emphasizes variation reduction and the elimination of defects. Lean achieves its goals by using less technical tools such as Lean Layouts, Continuous Improvement, and Respect for People, whereas Six Sigma uses technical tools such as Root Cause Analysis, Statistical Process Control, and DMAIC.

Manufacturing Strategies

Make to Stock (MTS) features economies of scale, large volumes, long production runs, low variety, and multiple distribution channels Assemble to Order (ATO) is base components are made, stocked to forecast, but products are not assembled until customer order is received Make to Order (MTO) relies on relatively small quantities, but more complexity Engineer to Order (ETO) products are unique and extensively customized for the specific needs of individual customers The choice of strategy determines which lead time the customer experiences

manufacturing strategies

Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO)

ATO a hybrid between

Make-to-Stock strategy (products fully produced in advance), and Make-to-Order where products are manufactured when the order has been received. The ATO strategy attempts to combine the benefits of both strategies - getting products into customers' hands quickly while allowing for the product to be customizable.

Key Principles of TQM

Management Commitment Employee Empowerment Fact Based Decision Making Continuous Improvement Customer Focus

Workforce Commitment

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

Manufacturing Processes

Manufacturing processes: Job Shop creates a custom product for each customer. High customization Batch manufactures a small quantity of an item in a single production run Line Flow process has standard products with a limited number of variations moving on an assembly line through stages of production Continuous Flow process is used to manufacture such items as gasoline, laundry detergent and chemicals. Inflexible processes. High capital investment

Make-to-Stock (MTS)

Means manufacture products for stock based on demand forecasts, which is a push system. Accuracy of the forecasts prevents excess inventory and opportunity loss due to stockout, the critical issue is how to forecast demands accurately. An MTS issue is avoid excess inventory. Companies today that operate with an MTS model struggle to make the correct product at the correct time in the correct quantities.

LEAN Layouts

Move people and materials when and where needed, and as soon as possible Very visual with operators at one center able to monitor work at another Manufacturing cells Process similar parts or components saving duplication of equipment and labor Are often U-shaped to facilitate easier operator and material movements

Uniform Plant Loading

Planning up to capacity in earlier time periods to meet demand in later time periods. Also called "front-loading" the plan or "leveling" the plan. Production schedule is frozen in the up-front time period (i.e., month) Helps suppliers better plan production

The Classical View of Quality

"99% Good" (3.8s) 20,000 lost articles of mail per hour 15 minutes of unsafe drinking water each day 5,000 incorrect surgical operations per week 2 unsafe landings at most major airports each day 200,000 incorrect drug prescriptions per year 7 hours without electricity each month

Six Sigma Methodologies

DMADV Methodology DMAIC Methodology:

DMADV Methodology:

Define --> Measure --> Analyze --> Design -->Verify: which is a data-driven quality strategy for designing products & processes. This methodology is used when the company wants to create a new product design or process that is more predictable and defect free.

DMAIC Methodology:

Define --> Measure --> Analyze --> Improve -->Control: which is a data-driven quality strategy for improving products & processes. This methodology is used when the company wants to improve an existing business process. DMAIC the most widely adopted Six Sigma methodology in use. It defines steps a Six Sigma practitioner typically follows during a project.

Reasons for Uniform Plant Loading

Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste.

Yellow Belt

Has a basic understanding of Six Sigma Methodology and the tools in the DMAIC problem solving process. A team member that reviews processes and process improvements in support of a Six Sigma process improvement project. A person who has passed the Green Belt certification exam but has not yet completed a Six Sigma project..

LEAN

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

Lean is not

a tool box of methods, ideas, or methodologies it is a cluture

Six Sigma

an enterprise and supply chain-wide philosophy emphasizing a commitment toward excellence, encompassing suppliers, employees, and customers. Identification and reduction of defects (errors).

Value

inherent worth of a product judged by the customer, reflected in its selling price and market demand. is further defined as anything for which the customer is willing to pay.

Small batch scheduling can be facilitated through

the use of Kanbans: "Signal" or "Card" in Japanese used for communication (e.g., visual signal) between workstations Contains information passed between stations. Authorizes production or the movement of materials to the next workstation. Could be conducted through the use of a computer software program, i.e., ERP system.

Lean provides

value for customers through use of the most efficient resources possible standard in many industries

Cost of Poor Quality

Internal Failure Costs External Failure Costs

Cost of Good Quality

Appraisal Costs Prevention Costs

Non-Value Added Process

Process steps that take time, resources, or space, but do not add value to the product or service

Joseph Juran established

Quality Planning, identify internal / external customers & needs: Develop products satisfying those needs. Mangers set goals, priorities, and compare results. Quality Control, determine what to control: Establish standards of performance. Measure performance, interpret the difference, take action. Quality Improvement, show need for improvement: Identify projects for improvement. Implement remedies Provide control to maintain improvement.

Use of technical tools

such as statistical quality control, and the seven tools of quality. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company. All employees should be trained to use technical tools. Six Sigma is concerned with the permanent fix to quality problems and seeks to identify and correct the root cause of the problem.

Why In ETO, cost of poor quality can be very high.

Warranty costs and cost of rework to replace items in a complex assembly have a serious negative effect on profit margins. Quality must be part of the entire process, and not just part of purchasing and manufacturing.

Cost of Quality can be divided into the:

Cost of Good Quality Cost of Poor Quality

Total Cost of Manufacturing (TCM)

the complete cost of producing and delivering products to your customers. Includes both fixed and variable costs used in the manufacturing, storage, and delivery of the product. Includes all costs associated with: Production and Procurement Inventory and Warehousing Transportation TCM is generally expressed as a cost per unit for each product.

Quick Response

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

W. Edwards Deming

widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model. He stressed management's responsibility for quality, and he developed 14 points to guide companies in quality improvement.

Who corrects and identifies quality problems

workers

The Six Sigma View of Quality

"99.99966% Good" (6s) 7 lost articles of mail per hour 1 minute of unsafe drinking water every 7 months 1.7 incorrect surgical operations per week 1 unsafe landing at most major airports every 5 years 68 incorrect drug prescriptions per year 1 hour without electricity every 34 years

What do Lean goals and objectives facilitate

. Lean goals and objectives facilitate an efficient and effective supply chain. Satisfying internal customer demand Communicating demand forecasts and production schedules up the supply chain Quickly moving products in the production system Optimizing inventory levels across the supply chain Increasing the value, capabilities, and flexibility of the workforce through cross-training Extending collaboration and alliances beyond just 1st tier suppliers and customers to include 2nd and 3rd tier suppliers and customers as well

The Five-S's

1. Seiri - Sort - Keep only necessary items in the workplace, eliminate the rest 2. Seiton - Straighten - Organize and arrange items to promote an efficient workflow 3. Seiso - Shine - Clean the work area so it is neat and tidy 4. Seiketsu - Standardize - Schedule regular cleaning and maintenance 5. Shitsuke - Sustain - Stick to the rules. Maintain and review the standards

brown belt

A Six Sigma Green Belt who has passed the Black Belt certification examination but has not yet completed their second Six Sigma project

green belt

A Six Sigma trained individual that can work as a team member on complex project and also lead small, carefully defined Six Sigma projects. On complex Six Sigma projects, green belts work closely with the Black Belt team leader to assist with data collection and analysis, and to keep the team functioning through all phases of the project.

black belt

A full-time quality professional who has a thorough knowledge of Six Sigma philosophies and principles, and possesses technical and managerial process improvement / innovation skills. Leads the Six Sigma project team and problem-solving efforts. Identifies projects and selects project team members. Trains and coaches project teams. A Black Belt is typically mentored by a master black belt

Role of Management

Create cultural change needed for LEAN to succeed: Provide atmosphere of cooperation. Empower workers to take action based on their ideas. Develop incentive system for lean behaviors.

The VOC can be captured in a variety of ways:

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

Quality is defined by the customer

Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more. It is vital to provide what the customers need to achieve customer satisfaction.

The Eight Wastes

Defects - Anything that does not meet the acceptance criteria Overproduction -Production before it is needed, or in excess of customer requirements. Providing a service that is not needed. Waiting - Elapsed time between processes when no work is being done Non-Utilized Talent - Underutilizing people's talents, skills or knowledge. De-motivating the workforce by not asking for input or recognizing success Transportation - Unnecessary movement of materials or products Inventory - Excess products or materials not being processed Motion/Movement - Unnecessary movement of people. Multiple hand-offs Extra-Processing - Unnecessary steps in a process. Redundancies between processes. More work or higher quality than required by the customer

Kaoru Ishikawa developed

Developed one the first tools in the quality management process, the Cause and Effect Diagram, which is also called the "Ishikawa" or "fishbone" diagram. With this tool, the user can see all possible causes of a problem to help find the root cause. He is also known as the father of quality circles and helped bring this concept into the mainstream. Further, he was a proponent of continuous customer service, meaning that a customer should continue receiving service even after receiving the product.

Pull Aproach

Each stage in the supply chain requests quantities needed from the previous stage. No excess inventory generated. Reducing inventory can uncover production problems.

Relationship of TCM to Manufacturing Strategy

Procurement and Production costs per unit go down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows) Inventory and Warehousing costs per unit go up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.) Transportation costs per unit go down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)

Three main foundational aspects of Six Sigma

Quality is defined by the customer Use of technical tools People involvement: Six Sigma follows a structured methodology, and has defined roles

In the 1990s, Supply Chain Management combined:

Quick Response Efficient Consumer Response (ECR) Just-in-Time (JIT) Keiretsu Relationships These approaches and concepts emerged as philosophies and practices known as Lean Manufacturing

LEAN Green Practices

Reduce cost of environmental management Improved environmental performance. Increase possibility a firms will adopt more advanced environmental management

Waste (Muda) Reduction

Reduce costs and add value by eliminating waste from the production system. Waste encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity. Before removed, processes often scattered, can negatively affect customers After removed, processes are more streamlined, result more satisfied customers.

Reducing wastes results in:

Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs

Respect for People

Respect for all people must exist for an organization to be at its best Flatter hierarchy than traditional organizations. Ordinary workers given great responsibility. Supply chain members work together in cross functional teams.

Setup time and Changeover time

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

People involvement

Six Sigma follows a structured methodology, and has defined roles for the participants. A company must involve all its employees in the Six Sigma program, and provide opportunities and incentives for employees to focus their talents and ability to satisfy customers. (WIIFM) All employees are responsible to identify quality problems. It is important that all Six Sigma team members have a well-defined role with measurable objectives. The members of an organization are assigned specific Six Sigma "roles"

Buyer's Risk

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

Supplier's Risk

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

The Role of Workers, Management, and Suppliers

The goal is NOT to reduce the number of people in an organization, it is to use people resources more wisely.

Small Batch Scheduling and Uniform Plant Loading

The ideal schedule, produce products as quickly as possible at the same rate as customer demand. In the real world, material availability, labor availability, and setup or changeover time influences the scheduling of large batches

Six Sigma History

The modern day concept of Six Sigma was originated by Motorola in 1980. In the early to mid-1980's, Motorola developed the new standard, created the methodology, and copyrighted it as well. Motorola documented > $16 Billion in savings as a result of Six Sigma. Thousands of companies around the world have adopted Six Sigma as a way of doing business. This is a direct result of many of America's leaders openly praising the benefits of Six Sigma. Six Sigma became famous when Jack Welch made it central to his successful business strategy at General Electric in 1995 Reported $200MM in savings in the first year of implementation (1996)

Why is ETO is building a unique product every time.

There may be components common from one product to another, but not in the same quantity as in repetitive manufacturing.

External Failure Costs

are costs that occur when the product or service that does not meet the designed quality standards, are not detected until after the product or service is delivered to the customer. They include: Costs for handling and responding to customer complaints. Costs for failed products that must be replaced or services that are repeated. Costs for repair of returned products and products still in the field. Costs for handling and investigation of rejected or recalled products, including return transportation costs.

Problem with large batches

batches can exacerbate the Bullwhip Effect as production in large batches creates an uneven workload Production not synchronized with customer demand making a pull system impossible. Throughput times in manufacturing go up and work-in-process inventory goes up, creating more waste in the system.

Philip Crosby

coined the phrase "quality is free" (which is also the title of his book) as defects are costly. He introduced the concepts of zero defects, and focus on prevention and not inspection. He introduced the concepts of zero defects, and focus on prevention and not inspection. Philip Crosby demonstrated what a powerful tool the cost of quality could be to raise awareness of the importance of quality. He referred to the measure as the "price of nonconformance" and argued that organizations choose to pay for poor quality.

Keiretsu Relationships

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

Goal of Operation Management

convert materials and labor into goods and services as efficiently and effectively as possible, while controlling costs to maximize profits.

Joseph Juran

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

four absolutes of quality

definition of quality is conformance to requirements The system of quality is prevention. Performance standard is zero defects. The measure of quality is the price of nonconformance

Manufacturing strategies can vary significantly

depending on product and customer requirements. A manufacturing strategy that suits a company's strengths is essential for maintaining an effective supply chain

Operations Management

design, execution, and control of operations that convert resources into goods and services, aligned with the company's business strategy. Managing the process to create goods and services.

The 5 Why's and the 5 How's Technique

designed to drill down into the details of a problem or a solution to find the root cause and the best corrective measure. By repeating why five times, the nature of the problem as well as its solution becomes clear. The 5 why's are used getting to the root cause of a problem The 5 how's are used to develop the details of a root solution to a problem. Both are designed to bring clarity and refinement to a problem statement or a potential solution. This technique is typically used in conjunction with the Cause and Effect Diagram.

Kaoru Ishikawa

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

Total Quality Management (TQM)

is a management philosophy based on the principle that every employee must be committed to maintaining high standards of work in every aspect of a company's operations, focused on meeting customer needs and organizational objectives. TQM is a combination of quality and management tools designed to increase business and reduce losses resulting from wasteful practices. When implemented, Six Sigma is an integral part of Total Quality Management. There is no single academic formalization of total quality, but noted quality gurus, i.e., experts, all contributed to the basic framework

Changeover Time

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

Setup Time

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