Operations Management: Creating Value Along the Supply Chain - PDF

Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 1 Introduction to Operations and Supply Chain Management © John Wiley and Sons, Inc. Le...

Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 1 Introduction to Operations and Supply Chain Management © John Wiley and Sons, Inc. Learning Objectives 1. Describe what the operations function is and how it relates to other business functions. 2. Discuss the key factors that have contributed to the evolution of operations and supply chain management. 3. Discuss how and why businesses operate globally and the importance of globalization in supply chain management. 4. Calculate and interpret productivity measures used for measuring competitiveness. 5. Discuss the process of developing, deploying, and monitoring the success of an operations strategy. © John Wiley and Sons, Inc. 2 Lecture Outline Along the Supply Chain Evolution of Operations and Supply Chain Management Globalization and Competitiveness Operations Strategy © John Wiley and Sons, Inc. 3 Along the Supply Chain What is Operations Management? o design, operation, and improvement of productive systems What is Operations? o a function or system that transforms inputs into outputs of greater value What is a Transformation Process? o a series of activities along a value chain extending from supplier to customer o activities that do not add value are superfluous and should be eliminated © John Wiley and Sons, Inc. 4 Transformation Process Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication © John Wiley and Sons, Inc. 5 Operations as a Transformation Process © John Wiley and Sons, Inc. 6 Operations Function Operations Marketing Finance and Accounting Human Resources Outside Suppliers © John Wiley and Sons, Inc. 7 How is Operations Relevant to my Major? (1 of 2) Accounting “As an auditor you must understand the fundamentals of operations management.” Information Technology “IT is a tool, and there’s no better place to apply it than in operations.” “We use so many things you learn in Management an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.” © John Wiley and Sons, Inc. 8 How is Operations Relevant to my Major? (2 of 2) Economics “It’s all about processes. I live by flowcharts and Pareto analysis.” “How can you do a good job Marketing marketing a product if you’re unsure of its quality or delivery status?” Finance “Most of our capital budgeting requests are from operations, and most of our cost savings, too.” © John Wiley and Sons, Inc. 9 Evolution of Operations and Supply Chain Management (1 of 2) Craft production o process of handcrafting products or services for individual customers Division of labor o dividing a job into a series of small tasks each performed by a different worker Interchangeable parts o standardization of parts initially as replacement parts; enabled mass production © John Wiley and Sons, Inc. 10 Evolution of Operations and Supply Chain Management (2 of 2) Scientific management o systematic analysis of work methods Mass production o high-volume production of a standardized product for a mass market Lean production o adaptation of mass production that prizes quality and flexibility © John Wiley and Sons, Inc. 11 Historical Events in Operations Management (1 of 2) Era Events/Concepts Dates Originator Industrial Revolution Steam engine 1769 James Walt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies 1911 Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Herzberg 1960s Douglas McGregor Operations Research Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting line theory, decision theory 1950s Operations research groups PERT/CPM 1960s MRP, EDI, EFT, CIM 1970s Joseph Orlicky, IBM, and others Quality Revolution JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality Management) 1980s W. Edwards Deming, Joseph Juran Strategy and operations Wickham Skinner, Robert Hayes Reengineering 1990s Michael Hammer, James Champy Six Sigma 1990s GE, Motorola © John Wiley and Sons, Inc. 12 Historical Events in Operations Management (2 of 2) Era Events/Concepts Dates Originator Internet Revolution Internet, WWW 1990s ARPANET, Tim Berners-Lee ERP, supply chain management SAP, i2 Technologies, Oracle, Dell, Apple E-commerce, social networking 2000s Amazon, Yahoo, eBay, Google, Facebook, YouTube, Twitter, etc. Globalization World Trade Organization 1900s GATT European Union 2000s Europe Global supply chains China, India Outsourcing Emerging economies Service science Sustainability Global warming 2010s, Today Numerous scientists, statesmen, and governments Carbon footprint Green products World Economic Forum, Kyoto Protocol, United Nations Corporate social responsibility (CSR) UN Global Compact Digital Revolution Big data, Internet of Things (IoT), 3D printing, Google, Apache, Procter & Gamble, MIT, smart cities, autonomous vehicles, drones, privacy, Amazon, and others and security © John Wiley and Sons, Inc. 13 Evolution of Operations and Supply Chain Management Supply chain management o management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners © John Wiley and Sons, Inc. 14 Globalization Why “go global”? o favorable cost o access to international markets o response to changes in demand o reliable sources of supply o latest trends and technologies Increased globalization o results from the Internet and falling trade barriers © John Wiley and Sons, Inc. 15 Hourly Compensation © John Wiley and Sons, Inc. 16 GDP per Capita in US$ Trillions © John Wiley and Sons, Inc. 17 Trade in Goods, % of GDP © John Wiley and Sons, Inc. 18 Manufacturing Output © John Wiley and Sons, Inc. 19 Productivity and Competitiveness Competitiveness o degree to which a nation can produce goods and services that meet the test of international markets Productivity o ratio of output to input Output o sales made, products produced, customers served, meals delivered, or calls answered Input o labor hours, investment in equipment, material usage, or square footage © John Wiley and Sons, Inc. 20 Measures of Productivity Single - Factor Pr oductivity Output Output Output Labor Materials Capital Multifactor Productivity Output Output Labor + Materials + Overhead Labor + Energy + Capital Total Factor Productivity Goods and services produced All inputs used to produce them © John Wiley and Sons, Inc. 21 Cunningham Industries © John Wiley and Sons, Inc. 22 Productivity Growth © John Wiley and Sons, Inc. 23 Strategy and Operations How the mission of a company is accomplished Provides direction for achieving a mission Unites the organization Provides consistency in decisions Keeps organization moving in the right direction © John Wiley and Sons, Inc. 24 Strategy Formulation 1. Defining a primary task o What is the firm in the business of doing? 2. Assessing core competencies o What does the firm do better than anyone else? 3. Determining order winners and order qualifiers o What qualifies an item to be considered for purchase? o What wins the order? 4. Positioning the firm o How will the firm compete? 5. Deploying the strategy © John Wiley and Sons, Inc. 25 Strategic Planning © John Wiley and Sons, Inc. 26 Order Winners and Order Qualifiers Order Qualifiers what qualifies an item to be considered for purchase characteristics of product or service to be considered Order Winners what wins the order characteristics of product or service that customer wants © John Wiley and Sons, Inc. 27 Positioning the Firm Cost Speed Quality Flexibility © John Wiley and Sons, Inc. 28 Positioning the Firm: Cost Waste elimination o relentlessly pursuing the removal of all waste Examination of cost structure o looking at the entire cost structure for reduction potential Lean production o providing low costs through disciplined operations © John Wiley and Sons, Inc. 29 Positioning the Firm: Speed Fast moves, Fast adaptations, Tight linkages Internet o Customers expect immediate responses Service organizations o always competed on speed (McDonald’s, LensCrafters, and Federal Express) Manufacturers o time-based competition: build-to-order production and efficient supply chains Fashion industry o two-week design-to-rack lead time of Spanish retailer, Zara © John Wiley and Sons, Inc. 30 Positioning the Firm: Quality A way to please the customer Minimizing defect rates or conforming to design specifications Ritz-Carlton - one customer at a time o Service system designed to “move heaven and earth” to satisfy customer o Employees empowered to satisfy a guest’s wish o Teams set objectives and devise quality action plans o Each hotel has a quality leader © John Wiley and Sons, Inc. 31 Positioning the Firm: Flexibility Ability to adjust to changes in product mix, production volume, or design Mass customization: the mass production of customized parts © John Wiley and Sons, Inc. 32 Policy Deployment (1 of 2) Policy deployment o translates corporate strategy into measurable objectives Hoshins o action plans generated from the policy deployment process © John Wiley and Sons, Inc. 33 Policy Deployment (2 of 2) © John Wiley and Sons, Inc. 34 Balanced Scorecard (1 of 2) Balanced scorecard o measuring more than financial performance 1. finances 2. customers 3. processes 4. learning and growing Key performance indicators o set of measures to help managers evaluate performance in critical areas © John Wiley and Sons, Inc. 35  Balanced Scorecard Worksheet Goal for KPI Results Mean Dimension Objectives Key Performance Indicator 2022 to Date Score Performance Finances Productivity Become industry cost leader % reduction in cost per unit 20% 10% 50% 65% Finances Growth Increase market share Market share 50% 40% 80% 65% Customers Quality Zero defects % good quality first pass 100% 80% 80% 87% Customers Timeliness On-time delivery % on-time deliveries 95% 90% 95% 87% Processes Suppliers Integrate into production % orders delivered to assembly 50% 40% 80% 73% Processes Suppliers Reduce inspections % suppliers ISO 9000 certified 90% 60% 67% 73% Processes Products Reduce time to produce Cycle time 10 mins. 12 mins. 83% 52% Processes Products Improve quality # warranty claims 200 1000 20% 52% Processes Distribution Reduce transportation costs % Full truckload shipments 75% 30% 40% 40% Processes Service Improve response to customer inquiries % queries satisfied on first pass 90% 60% 67% 67% Processes Risk Reduce inventory obsolescence Inventory turnover 12 6 50% 50% Processes Risk Reduce customer backlog % order backlogged 10% 20% 50% 50% Learning & Growing Human capital Develop quality improvement skills # Six Sigma Black Belts 25 2 8% 35% Human capital Develop quality improvement skills % trained in statistical process control 80% 50% 63% 35% Learning & Growing Information capital Provide technology to improve Processes % customers who can track orders 100% 60% 60% 61% Information capital Provide technology to improve processes % suppliers who use EDI 80% 50% 63% 61% Learning & Growing Organizational capital Create innovative culture # employee suggestions 100 60 60% 55% Organizational capital Create innovative culture % products new this year 20% 10% 50% 55% © John Wiley and Sons, Inc. 36 Balanced Scorecard (2 of 2) Radar Chart Dashboard © John Wiley and Sons, Inc. 37 Operations Strategy © John Wiley and Sons, Inc. 38 Copyright © John Wiley & Sons, Inc. or the author, All rights reserved. Students and instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. No part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. © John Wiley and Sons, Inc. 39 Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 1 Supplement Decision Analysis © John Wiley and Sons, Inc. Learning Objective 1 Appropriately use a variety of quantitative decision analysis techniques. © John Wiley and Sons, Inc. 2 Decision Analysis Quantitative methods o a set of tools for operations manager Decision analysis o a set of quantitative decision-making techniques for decision situations in which uncertainty exists o Example of an uncertain situation demand for a product may vary between 0 and 200 units, depending on the state of market © John Wiley and Sons, Inc. 3 Decision Making Without Probabilities States of nature o Events that may occur in the future o Examples of states of nature: high or low demand for a product good or bad economic conditions Decision making under risk o probabilities can be assigned to the occurrence of states of nature in the future Decision making under uncertainty o probabilities can NOT be assigned to the occurrence of states of nature in the future © John Wiley and Sons, Inc. 4 Payoff Table Payoff table o method for organizing and illustrating payoffs from different decisions given various states of nature Payoff o outcome of a decision Decision States of Nature: a States of Nature: b 1 Payoff 1a Payoff 1b 2 Payoff 2a Payoff 2b © John Wiley and Sons, Inc. 5 Decision Making Criteria Under Uncertainty (1 of 2) Maximax o choose decision with the maximum of the maximum payoffs Maximin o choose decision with the maximum of the minimum payoffs Minimax regret o choose decision with the minimum of the maximum regrets for each alternative © John Wiley and Sons, Inc. 6 Decision Making Criteria Under Uncertainty (2 of 2) Hurwicz o choose decision in which decision payoffs are weighted by a coefficient of optimism, alpha o coefficient of optimism is a measure of a decision maker’s optimism, from 0 (completely pessimistic) to 1 (completely optimistic) Equal likelihood o choose decision in which each state of nature is weighted equally © John Wiley and Sons, Inc. 7 Artic Textile Company Decision States of Nature: Good Foreign States of Nature: Poor Foreign Competitive Conditions Competitive Conditions Expand $800,000 $500,000 Maintain status quo 1,300,000 −150,000 Sell now 320,000 320,000 © John Wiley and Sons, Inc. 8 Maximax Solution Decision States of Nature: Good Foreign States of Nature: Poor Foreign Competitive Conditions Competitive Conditions Expand $800,000 $500,000 Maintain status quo 1,300,000 −150,000 Sell now 320,000 320,000 Expand: $800,000 Status quo: 1,300,000 ← Maximum Sell: 320,000 Decision: Maintain status quo © John Wiley and Sons, Inc. 9 Maximin Solution Decision States of Nature: Good Foreign States of Nature: Poor Foreign Competitive Conditions Competitive Conditions Expand $800,000 $500,000 Maintain status quo 1,300,000 −150,000 Sell now 320,000 320,000 Expand: $500,000 ← Maximum Status quo: −150,000 Sell: 320,000 Decision: Expand © John Wiley and Sons, Inc. 10 Minimax Regret Solution Good Competitive Conditions Poor Competitive Conditions $1,300,000 − 800,000 = 500,000 $500,000 − 500,000 = 0 1,300,000 − 1,300,000 = 0 500,000 − (− 150,000) = 650,000 1,300,000 − 320,000 = 980,000 500,000 − 320, 000 = 180,000 Expand: $500,00 ← Minimum Status quo: 650,000 Sell: 980,000 Decision: Expand © John Wiley and Sons, Inc. 11 Hurwicz Criteria Good Competitive Conditions Poor Competitive Conditions $1,300,000 − 800,000 = 500,000 $500,000 − 500,000 = 0 1,300,000 − 1,300,000 = 0 500,000 − (− 150,000) = 650,000 1,300,000 − 320,000 = 980,000 500,000 − 320, 000 = 180,000 Expand: $800,000(0.3) + 500,000(0.7) = $590,000 ← Maximum Status quo: 1,300,000(0.3) − 150,000(0.7) = 285,000 Sell: 320,000(0.3) + 320,000(0.7) = 320,000 Decision: Expand © John Wiley and Sons, Inc. 12 Equal Likelihood Criteria Good Competitive Conditions Poor Competitive Conditions $1,300,000 − 800,000 = 500,000 $500,000 − 500,000 = 0 1,300,000 − 1,300,000 = 0 500,000 − (− 150,000) = 650,000 1,300,000 − 320,000 = 980,000 500,000 − 320, 000 = 180,000 Expand: $800,000(0.50) + 500,000(0.50) = $650,000 ← Maximum Status quo: 1,300,000(0.50) − 150,000(0.50) = 575,000 Sell: 320,000(0.50) + 320,000(0.50) = 320,000 Decision: Expand © John Wiley and Sons, Inc. 13 Decision Analysis with Excel © John Wiley and Sons, Inc. 14 Decision Making with Probabilities (1 of 2) Risk involves assigning probabilities to states of nature Expected value o a weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence © John Wiley and Sons, Inc. 15 Expected Value n EV(x) =  p(x i )x i i=1 where xi = outcome i p(xi) = probability of outcome i © John Wiley and Sons, Inc. 16 Decision Making with Probabilities (2 of 2) Good Competitive Conditions Poor Competitive Conditions $1,300,000 − 800,000 = 500,000 $500,000 − 500,000 = 0 1,300,000 − 1,300,000 = 0 500,000 − (− 150,000) = 650,000 1,300,000 − 320,000 = 980,000 500,000 − 320,000 = 180,000 EV (expand) = $800,000(0.70) + 500,000(0.30) = $710,000 EV (status quo) = 1,300,000(0.70) – 150,000(0.30) = 865,000 ←Maximum EV (sell) = 320,000(0.70) + 320,000 (0.30) = 320,000 © John Wiley and Sons, Inc. 17 Decision Making with Probabilities: Excel © John Wiley and Sons, Inc. 18 Expected Value of Perfect Information EVPI o maximum value of perfect information to the decision maker o maximum amount that would be paid to gain information that would result in a decision better than the one made without perfect information © John Wiley and Sons, Inc. 19 EVPI Good conditions will exist 70% of the time o choose maintain status quo with payoff of $1,300,000 Poor conditions will exist 30% of the time o choose expand with payoff of $500,000 Expected value given perfect information = $1,300,000 (0.70) + 500,000 (0.30) = $1,060,000 Recall that expected value without perfect information was $865,000 (maintain status quo) EVPI = $1,060,000 − 865,000 = $195,000 © John Wiley and Sons, Inc. 20 Sequential Decision Trees A graphical method for analyzing decision situations that require a sequence of decisions over time Decision tree consists of o Square nodes - indicating decision points o Circles nodes - indicating states of nature o Arcs - connecting nodes © John Wiley and Sons, Inc. 21 Evaluations at Nodes Compute EV at nodes 6 & 7 o EV(node 6) = 0.80($3,000,000) + 0.20($700,000) = $2,540,000 o EV(node 7) = 0.30($2,300,000) + 0.70($1,000,000) = $1,390,000 Decision at node 4 is between $2,540,000 for Expand and $450,000 for Sell land Choose Expand Repeat expected value calculations and decisions at remaining nodes © John Wiley and Sons, Inc. 22 Decision Tree Analysis © John Wiley and Sons, Inc. 23 Copyright © John Wiley & Sons, Inc. or the author, All rights reserved. Students and instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. No part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. © John Wiley and Sons, Inc. 24 Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 2 Quality Management © John Wiley and Sons, Inc. Learning Objectives 1. Discuss the meaning of quality of goods and services from both the producer’s and consumer’s perspectives. 2. Discuss the evolution of quality management into a quality management system, including key figures and their contributions. 3. Use several common quality-control tools. 4. Describe several approaches used for involving employees in the quality- improvement process. 5. Describe the Six Sigma and Lean Six Sigma quality management systems and calculate changes in profit resulting from Six Sigma projects. 6. Classify quality-related costs and calculate and interpret quality-measurement indices. 7. Use several quality measures that reflect productivity. © John Wiley and Sons, Inc. 2 Lecture Outline What Is Quality? Quality in Service Evolution of Quality Companies Management Six Sigma Quality Tools Cost of Quality TQM and QMS Effect of Quality Focus of Quality Management on Management—Customers Productivity Role of Employees in Quality Awards Quality Improvement ISO 9000 © John Wiley and Sons, Inc. 3 What Is Quality? Oxford American Dictionary o a degree or level of excellence American Society for Quality (ASQ) o totality of features and characteristics that satisfy needs without deficiencies Consumer’s and producer’s perspective © John Wiley and Sons, Inc. 4 What Is Quality: Customer’s Perspective Fitness for use o how well product or service does what it is supposed to Quality of design o designing quality characteristics into a product or service Example: o A Mercedes and a Ford are equally “fit for use,” but with different design dimensions. © John Wiley and Sons, Inc. 5 Dimensions of Quality: Manufactured Products (1 of 3) Performance o basic operating characteristics of a product; o how well a car handles or its gas mileage Features o “extra” items added to basic features such as leather interior in a car Reliability o probability that a product will operate properly within an expected time frame; that is, a TV will work without repair for about seven years © John Wiley and Sons, Inc. 6 Dimensions of Quality: Manufactured Products (2 of 3) Conformance o degree to which a product meets pre–established standards Durability o how long product lasts before replacement; with care, L. L. Bean boots may last a lifetime Serviceability o ease of getting repairs, speed of repairs o courtesy and competence of repair person © John Wiley and Sons, Inc. 7 Dimensions of Quality: Manufactured Products (3 of 3) Aesthetics o how a product looks, feels, sounds, smells, or tastes Safety o assurance that customer will not suffer injury or harm from a product an especially important consideration for automobiles Perceptions o subjective perceptions based on brand name, advertising, etc. © John Wiley and Sons, Inc. 8 Dimensions of Quality: Services Time and timeliness o how long must a customer wait for service, and is it completed on time? is an overnight package delivered overnight? Completeness: o is everything customer asked for provided? is a mail order from a catalogue company complete when delivered? © John Wiley and Sons, Inc. 9 Dimensions of Quality: Service (1 of 2) Courtesy: o how are customers treated by employees? are catalogue phone operators nice and are their voices pleasant? Consistency o is same level of service provided to each customer each time? is your newspaper delivered on time every morning? © John Wiley and Sons, Inc. 10 Dimensions of Quality: Service (2 of 2) Accessibility and convenience o how easy is it to obtain service? does service representative answer your calls quickly? Accuracy o is service performed right every time? is your bank or credit card statement correct every month? Responsiveness o how well does company react to unusual situations? how well is a telephone operator able to respond to a customer’s questions? © John Wiley and Sons, Inc. 11 What Is Quality: Producer’s Perspective Quality of conformance o making sure product or service is produced according to design if new tires do not conform to specifications, they wobble if a hotel room is not clean when a guest checks in, hotel is not functioning according to specifications of its design © John Wiley and Sons, Inc. 12 Meaning of Quality © John Wiley and Sons, Inc. 13 What Is Quality: A Final Perspective Customer’s and producer’s perspectives depend on each other Producer’s perspective: o production process and COST Customer’s perspective: o fitness for use and PRICE Customer’s view must dominate © John Wiley and Sons, Inc. 14 Evolution of Quality Management: Quality Gurus (1 of 2) Walter Shewhart o In 1920s, developed control charts o Introduced term “quality assurance” W. Edwards Deming o Developed courses during WW II to teach statistical quality-control techniques to engineers and executives of military suppliers o After war, began teaching statistical quality control to Japanese companies Joseph M. Juran o Followed Deming to Japan in 1954 o Focused on strategic quality planning o Quality improvement achieved by focusing on projects to solve problems and securing breakthrough solutions © John Wiley and Sons, Inc. 15 Evolution of Quality Management: Quality Gurus (2 of 2) Armand V. Feigenbaum o In 1951, introduced concepts of total quality control and continuous quality improvement Philip Crosby o In 1979, emphasized that costs of poor quality far outweigh cost of preventing poor quality o In 1984, defined absolutes of quality management—conformance to requirements, prevention, and “zero defects” Kaoru Ishikawa o Promoted use of quality circles o Developed “fishbone” diagram o Emphasized importance of internal customer © John Wiley and Sons, Inc. 16 Deming’s 14 Points (1 of 2) 1. Create a constancy of purpose toward product improvement to achieve long-term organizational goals. 2. Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally. 3. Eliminate the need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design. 4. Select a few suppliers or vendors based on quality commitment rather than competitive prices. 5. Constantly improve the production process by focusing on the two primary sources of quality problems, the system and employees, thus increasing productivity and reducing costs. 6. Institute worker training that focuses on the prevention of quality problems and the use of statistical quality-control techniques 7. Instill leadership among supervisors to help employees perform better © John Wiley and Sons, Inc. 17 Deming’s 14 Points (2 of 2) 8. Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems 9. Eliminate barriers between departments, and promote cooperation and a team approach for working together. 10. Eliminate slogans and numerical targets that urge employees to achieve higher performance levels without first showing them how to do it. 11. Eliminate numerical quotas that employees attempt to meet at any cost without regard for quality 12. Enhance worker pride, artisanry, and self-esteem by improving supervision and the production process so that employees can perform to their capabilities. 13. Institute vigorous education and training programs in methods of quality improvement throughout the organization, from top management down, so that continuous improvement can occur. 14. Develop a commitment from top management to implement the previous 13 points. © John Wiley and Sons, Inc. 18 Deming Wheel: PDCA Cycle © John Wiley and Sons, Inc. 19 TQM and QMS Total Quality Management (TQM) o customer-oriented, leadership, strategic planning, employee responsibility, continuous improvement, cooperation, statistical methods, and training and education Quality Management System (QMS) o system to achieve customer satisfaction that complements other company systems © John Wiley and Sons, Inc. 20 Focus of Quality Management— Customers TQM and QMSs o serve to achieve customer satisfaction Satisfied customers are less likely to switch to a competitor It costs 5-6 times more to attract new customers as to keep an existing one 94-96% of dissatisfied customers don’t complain Small increases in customer retention mean large increases in profits © John Wiley and Sons, Inc. 21 Measuring Customer Satisfaction An important component of any QMS Use customer surveys to hear “Voice of the Customer” © John Wiley and Sons, Inc. 22 Quality Tools Process Flow Chart Histogram Cause-and-Effect Diagram Scatter Diagram Check Sheet Statistical Process Control Pareto Analysis Chart © John Wiley and Sons, Inc. 23 Process Flow Chart A diagram of the steps in a process Helps focus on location of problem in a process © John Wiley and Sons, Inc. 24 Cause-and-Effect Diagram Cause-and-effect diagram (“fishbone” diagram) o chart showing different categories of problem causes © John Wiley and Sons, Inc. 25 Cause-and-Effect Matrix Cause-and-effect matrix o grid used to prioritize causes of quality problems © John Wiley and Sons, Inc. 26 Check Sheets and Histograms Tally number of defects from a list of causes Frequency diagram of data for quality problem © John Wiley and Sons, Inc. 27 Pareto Analysis Pareto analysis o most quality problems result from a few causes o Also referred to as 80/20 Rule Cause Number of Defects Percentage Staff communication 83 64% BTS system 17 13 Room cleaning 13 10 Beepers 7 6 Laundry 4 3 Patients 3 2 Family 3 2 130 100% © John Wiley and Sons, Inc. 28 Pareto Chart © John Wiley and Sons, Inc. 29 Scatter Diagram Graph showing relationship between 2 variables in a process Identifies pattern that may cause a quality problem © John Wiley and Sons, Inc. 30 Control Chart A chart with statistical upper and lower limits If sample statistics remain between these limits we assume the process is in control © John Wiley and Sons, Inc. 31 Quality Management in the Supply Chain Companies need support of their suppliers to satisfy their customers Reduce the number of suppliers Partnering o a relationship between a company and its supplier based on mutual quality standards © John Wiley and Sons, Inc. 32 Role of Employees in Quality Improvement Participative problem solving o employees involved in quality-management o every employee has undergone extensive training to provide quality service to Disney’s guests Kaizen o involves everyone in process of continuous improvement o employees determining solutions to their own problems © John Wiley and Sons, Inc. 33 Quality Circles Voluntary group of workers and supervisors from same area who address quality problems © John Wiley and Sons, Inc. 34 Process (Quality) Improvement Teams Focus attention on business processes rather than separate company functions Includes members from the interrelated departments which make up a process Important to understand the process the team is addressing Process flowcharts are key tools © John Wiley and Sons, Inc. 35 Quality in Services Service defects are not always easy to measure because service output is not usually a tangible item Services tend to be labor intensive Services and manufacturing companies have similar inputs but different processes and outputs © John Wiley and Sons, Inc. 36 Quality Attributes in Services Principles of TQM apply equally well to services and manufacturing Timeliness is an important dimension o how quickly a service is provided Benchmark o “best” level of quality achievement in one company that other companies seek to achieve © John Wiley and Sons, Inc. 37 Six Sigma A process for developing and delivering virtually perfect products and services Six Sigma is a measure of how much a process deviates from perfection Goal: 3.4 defects per million opportunities (DPMO) © John Wiley and Sons, Inc. 38 Six Sigma Process (1 of 2) 1. Align o executives create balanced scorecard 2. Mobilize o project teams formed and empowered to act 3. Accelerate o black and green belts execute project 4. Govern o monitor and review projects © John Wiley and Sons, Inc. 39 Improvement Project Members Champion o An executive responsible for project success Master Black Belt o Teacher and mentor to black belts o Monitors and reviews all black belts on projects Black Belt o Full-time employee o Project Leader – two year assignment Green Belt o Employee with additional training – team members o May or may not be full-time Yellow Belt o Employee with basic understanding of quality principles o Not all organizations recognize this level © John Wiley and Sons, Inc. 40 Breakthrough Strategy: DMAIC Define o problem is defined Measure o process measured, data collected Analyze o data analysis to find cause of problem Improve o develop solutions to problem Control o ensure improvement is continued © John Wiley and Sons, Inc. 41 Six Sigma Process (2 of 2) © John Wiley and Sons, Inc. 42 Six Sigma Tools (1-3) Quality Function Deployment (QFD) o capture the “voice of the customer” Cause & Effect Matrix o identify and prioritize causes of a problem Failure Modes and Affects Analysis (FMEA) o analyze potential problems before they occur © John Wiley and Sons, Inc. 43 Six Sigma Tools (4-6) t-Test o test for differences between groups Statistical Process Control (SPC) Chart o monitor a process over time for variations Design of Experiments (DOE) o determining relationships between factors affecting inputs and outputs of a process © John Wiley and Sons, Inc. 44 Design for Six Sigma (DFSS) A systematic approach to designing products and processes that will achieve Six Sigma Uses same basic approach as breakthrough strategy Employs the strategy up front in the design and development phases A more effective and less expensive way to achieve Six Sigma © John Wiley and Sons, Inc. 45 Lean Six Sigma (1 of 2) Integrate Six Sigma and “lean systems” (Ch 16) Lean seeks to optimize process flows Lean extends earlier efforts in efficiency Lean process improvement steps 1. determine what creates value for customers 2. identify “value stream” 3. remove waste in the value stream 4. make process responsive to customer needs 5. continually repeat attempts to remove waste © John Wiley and Sons, Inc. 46 Lean Six Sigma (2 of 2) Six Sigma and Lean seek o process improvements o Increased value to customers They approach the goals in different, complementary ways © John Wiley and Sons, Inc. 47 Profitability The typical criterion for selecting Six Sigma projects One of the factors distinguishing Six Sigma from TQM “Quality is not only free, it is an honest-to-everything profit maker” Quality improvements reduce costs of poor quality © John Wiley and Sons, Inc. 48 Cost Impact of Six Sigma Medtek Company implements Six Sigma to reduce defects from 10% to 0 %. Then spend $120,000 for more change. After Six Original After Changes Sigma Costs Sales $1,000,000 1,000,000 1,000,000 Variable cost 600,000 540,054 540,054 Fixed cost 350,000 350,000 360,000 Profit 50,000 109,946 99,946 Almost Doubled 41.6% return Return on 120,000 = 100*(99,946−50,000)/120,000 = 41.6% © John Wiley and Sons, Inc. 49 Cost of Quality Cost of Achieving Good Quality o Prevention costs costs incurred during product design o Appraisal costs costs of measuring, testing, and analyzing Cost of Poor Quality o Internal failure costs include scrap, rework, process failure, downtime, and price reductions o External failure costs include complaints, returns, warranty claims, liability, and lost sales © John Wiley and Sons, Inc. 50 Prevention Costs Quality planning costs Training costs o costs of developing and o costs of developing and implementing quality putting on quality training management program programs for employees Product-design costs and management o costs of designing products Information costs with quality characteristics o costs of acquiring and Process costs maintaining data related to quality, and development o costs expended to make sure and analysis of reports on productive process conforms quality performance to quality specifications © John Wiley and Sons, Inc. 51 Appraisal Costs Inspection and testing o costs of testing and inspecting materials, parts, and product at various stages and at end of process Test equipment costs o costs of maintaining equipment used in testing quality characteristics of products Operator costs o costs of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality © John Wiley and Sons, Inc. 52 Internal Failure Costs Scrap costs Process downtime costs o costs of poor-quality products o costs of shutting down that must be discarded, productive process to fix including labor, material, and problem indirect costs Price-downgrading costs Rework costs o costs of discounting poor- o costs of fixing defective quality products—that is, products to conform to quality selling products as “seconds” specifications Process failure costs o costs of determining why production process is producing poor-quality products © John Wiley and Sons, Inc. 53 External Failure Costs Customer complaint costs Product liability costs o costs of investigating and o litigation costs resulting from satisfactorily responding to a product liability and customer customer complaint resulting injury from a poor-quality product Lost sales costs Product return costs o costs incurred because o costs of handling and replacing customers are dissatisfied with poor-quality products returned poor-quality products and do by customer not make additional purchases Warranty claims costs o costs of complying with product warranties © John Wiley and Sons, Inc. 54 Measuring and Reporting Quality Costs Index numbers o ratios that measure quality costs against a base value o labor index ratio of quality cost to labor hours o cost index ratio of quality cost to manufacturing cost o sales index ratio of quality cost to sales o production index ratio of quality cost to units of final product © John Wiley and Sons, Inc. 55 Cost of Quality (1 of 2) Year 1 Year 2 Year 4 Year 4 Quality Costs Prevention 27,000 41,500 74,600 112,300 Appraisal 155,000 122,500 113,400 107,000 Internal failure 386,400 469,200 347,800 219,100 External failure 242,000 196,000 103,500 106,000 Total 810,400 829,200 639,300 544,400 Accounting Measures Sales 4,360,000 4,450,000 5,050,000 5,190,000 Manufacturing costs 1,760,000 1,810,000 1,880,000 1,890,000 © John Wiley and Sons, Inc. 56 Cost of Quality (2 of 2) Quality index = total quality costs/base * 100 Year 1 quality cost per sale 810,400 * 100 / 4,360,000 = 18.58 Quality: Quality Manufacturing: Year Sales Index Cost Index Year 1 18.58 46.04 Year 2 18.63 45.18 Year 3 12.66 34.00 Year 4 10.49 28.80 © John Wiley and Sons, Inc. 57 Quality–Cost Relationship Cost of quality o difference between price of nonconformance and conformance o cost of doing things wrong 20 to 35% of revenues o cost of doing things right 3 to 4% of revenues © John Wiley and Sons, Inc. 58 Effect of Quality Management on Productivity Productivity o A ratio of output to input o = output / input o Used to measure labor and equipment Quality impact on productivity o fewer defects increase output o quality improvement reduces inputs Yield o a measure of productivity © John Wiley and Sons, Inc. 59 Measuring Product Yield and Productivity Yield=(total input)(% good units) + (total input)(1−%good units)(% reworked) or Y = (I)(%G) + (I)(1 − %G)(%R) where I = initial quantity started in production %G = percentage of good units produced %R = percentage of defective units that are successfully reworked © John Wiley and Sons, Inc. 60 Computing Product Yield H & S Motor manufacturer Starts a batch of 100 motors. 80 % are good when produced 50 % of the defective motors can be reworked Y = (I)(%G) + (I)(1−%G)(%R) = 100(.80) + 100(1−.80)(.50) = 90 motors Increase quality to 90% good Y =100(.90) + 100(1−.90)(.50) = 95 motors © John Wiley and Sons, Inc. 61 Computing Product Cost per Unit (K d )(I) + (K r )(R) Product Cost = Y where: Kd = direct manufacturing cost per unit I = input Kr = rework cost per unit R = reworked units Y = yield © John Wiley and Sons, Inc. 62 Cost per Unit Direct cost = $30 Rework cost = $12 80% good 50% can be reworked (K d )(I) + (K r )(R) $30 *100 + $12*10 = = $34.67 / motor Y 90 motors Increase quality to 90% good $30 *100 + $12* 5 = = $32.21 / motor 95 motors © John Wiley and Sons, Inc. 63 Computing Product Yield for Multistage Processes Y = (I)(%g1)(%g2) … (%gn) where: I = input of items to the production process that will result in finished products gi = good-quality, work-in-process products at stage i © John Wiley and Sons, Inc. 64 Multistage Yield Average Percentage Stage Good Quality 1 0.93 2 0.95 3 0.97 4 0.92 Y = (I)(%g1)(%g2) … (%gn) = 100 *.93 *.95 *.97 *.92 = 78.8 motors © John Wiley and Sons, Inc. 65 Initial Batch Size For 100 Motors Y I= (%g1 )(%g2 )  (%gn ) 100 = = 126.88 → 127.93 *.95 *.97 *.92 © John Wiley and Sons, Inc. 66 Quality–Productivity Ratio (1 of 3) QPR productivity index that includes productivity and quality costs ( good-quality units ) QPR= (100 ) (input ) (processing cost ) + (reworked units ) (rework cost ) © John Wiley and Sons, Inc. 67 Quality Productivity Ratio (2 of 3) Direct cost = $30 Rework cost = $12 80% good 50% can be reworked Initial batch size = 100 Base Case 80 + 10 QPR= (100 ) = 2.89 100 * $30 + 10 * $12 Case1:Increase I to200 160 + 20 QPR= (100 ) =2.89 – NO CHANGE 200 * $30 + 20 * $12 © John Wiley and Sons, Inc. 68 Quality Productivity Ratio (3 of 3) Case 2: Reduce direct cost to $26 and rework cost to $10 80 + 10 QPR= (100 ) = 3.33 100 * $26 + 10 * $10 Case 3: Increase %G to 95% 95 + 2.5 QPR= (100 ) = 3.22 100 * $30 + 2.5 * $12 Case 4: Decrease costs and increase %G 95+ 2.5 QPR= (100 ) =3.71 100 * $26 + 2.5 * $10 © John Wiley and Sons, Inc. 69 Canada Awards for Excellence (CAE) Created in 1984 to stimulate growth of quality management in Canada. Key points that differentiate the awards from Excellence Canada from other awards are 1) Governor General of Canada is the Vice-Regal Patron of the CAE, 2) CAE criteria are comprehensive and cover all aspects of an organization, 3) CAE has developed an implementation roadmap that firms can follow to achieve excellence. © John Wiley and Sons, Inc. 70 Malcolm Baldrige Award Created in 1987 to stimulate growth of quality management in United States Categories o Leadership o Information and analysis o Strategic planning o Human resource focus o Process management o Business results o Customer and market focus © John Wiley and Sons, Inc. 71 Other Awards for Quality Other US awards Other International o Armand V. Feigenbaum awards Medal o European Quality Award o Deming Medal o Australian Business o E. Jack Lancaster Medal Excellence Award o Edwards Medal o Deming Prize from Japan o Shewhart Medal o Rajiv Gandhi Award from India o Ishikawa Medal © John Wiley and Sons, Inc. 72 ISO 9000 (1 of 2) Procedures and policies for international quality certification ISO 9000:2015 o Quality Management Systems—Fundamentals and Vocabulary o defines fundamental terms and definitions used in ISO 9000 family ISO 9001:2015 o Quality Management Systems—Requirements o standard to assess ability to achieve customer satisfaction © John Wiley and Sons, Inc. 73 ISO 9000 (2 of 2) ISO 9004:2015 o Quality Management Systems—Guidelines for Performance Improvements o guidance to a company for continual improvement of its quality- management system © John Wiley and Sons, Inc. 74 ISO 9000 Certification, Implications, and Registrars ISO 9001:2015—only standard that carries third-party certification Many overseas companies will not do business with a supplier unless it has ISO 9000 certification ISO 9000 accreditation ISO registrars © John Wiley and Sons, Inc. 75 Copyright © John Wiley & Sons, Inc. or the author, All rights reserved. Students and instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. No part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. © John Wiley and Sons, Inc. 76 Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 16 Lean Systems © John Wiley and Sons, Inc. Learning Objectives 1. Describe the 10 basic elements of lean production. 2. Contrast the application of lean concepts in North American-based facilities versus Japan-based facilities, and describe the benefits and drawbacks of lean production. 3. Describe how lean systems can be applied in other situations, such as services, the supply chain, and environmental initiatives. © John Wiley and Sons, Inc. 2 Lean Production Doing more with less inventory, fewer workers, less space Just-in-time (JIT) o smoothing the flow of material to arrive just as it is needed o “JIT” and “Lean Production” are used interchangeably Muda o waste, anything other than that which adds value to product or service © John Wiley and Sons, Inc. 3 Waste in Operations (1 of 3) © John Wiley and Sons, Inc. 4 Waste in Operations (2 of 3) © John Wiley and Sons, Inc. 5 Waste in Operations (3 of 3) © John Wiley and Sons, Inc. 6 Basic Elements 1. Flexible resources 2. Cellular layouts 3. Pull system 4. Kanbans 5. Small lots 6. Quick setups 7. Uniform production levels 8. Quality at the source 9. Total productive maintenance 10. Supplier networks © John Wiley and Sons, Inc. 7 Flexible Resources Multifunctional workers o perform more than one job General-purpose machines o perform several basic functions Cycle time o time required for the worker to complete one pass through the operations assigned Takt time o paces production to customer demand © John Wiley and Sons, Inc. 8 Standard Operating Routine for a Worker © John Wiley and Sons, Inc. 9 Cellular Layouts Manufacturing cells o dissimilar machines brought together to manufacture a family of parts Cycle time is adjusted to match takt time by changing worker paths © John Wiley and Sons, Inc. 10 Cells With Worker Routes © John Wiley and Sons, Inc. 11 Worker Routes Lengthen as Volume Decreases © John Wiley and Sons, Inc. 12 Pull System Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Prevent over and underproduction While push systems rely on a predetermined schedule, pull systems rely on customer requests © John Wiley and Sons, Inc. 13 Kanbans Card which indicates standard quantity of production Derived from two-bin inventory system Maintain discipline of pull production Authorize production and movement of goods © John Wiley and Sons, Inc. 14 Origin of Kanban © John Wiley and Sons, Inc. 15 Types of Kanban Production Kanban Signal kanban o authorizes production of o a triangular kanban used goods to signal production at the Withdrawal Kanban previous workstation o authorizes movement of Material kanban goods o used to order material in Kanban square advance of a process o a marked area designated to Supplier kanban hold items o rotates between the factory and suppliers © John Wiley and Sons, Inc. 16 Dual Kanban System © John Wiley and Sons, Inc. 17 Other Kanbans (1 of 2) © John Wiley and Sons, Inc. 18 Other Kanbans (2 of 2) © John Wiley and Sons, Inc. 19 Determining Number of Kanbans (1 of 2) average demand during lead time + safety stock No. of Kanbans = container size dL + S N= C where N = number of kanbans or containers d = average demand over some time period L = lead time to replenish an order S = safety stock C = container size © John Wiley and Sons, Inc. 20 Determining Number of Kanbans (2 of 2) d = 150 bottles per hour L = 30 minutes = 0.5 hours S = 0.10 (150 x 0.5 ) = 7.5 C = 25 bottles dL + S (150 × 0.5 ) + 7.5 N= = C 25 75 + 7.5 = = 3.3 kanbans or containers 25 Round up to 4 (to allow some slack) or down to 3 (to force improvement) © John Wiley and Sons, Inc. 21 Small Lots Require less space and capital investment Move processes closer together Make quality problems easier to detect Make processes more dependent on each other © John Wiley and Sons, Inc. 22 Inventory Hides Problems © John Wiley and Sons, Inc. 23 Less Inventory Exposes Problems © John Wiley and Sons, Inc. 24 Components of Lead Time Processing time o Reduce number of items or improve efficiency Move time o Reduce distances, simplify movements, standardize routings Waiting time o Better scheduling, sufficient capacity Setup time o Generally the biggest bottleneck © John Wiley and Sons, Inc. 25 Quick Setups Internal setup SMED Principles o Can be performed only o Separate internal setup when a process is stopped from external setup External setup o Convert internal setup to o Can be performed in external setup advance o Streamline all aspects of setup o Perform setup activities in parallel or eliminate them entirely © John Wiley and Sons, Inc. 26 Techniques for Reducing Setup Time (1 of 3) © John Wiley and Sons, Inc. 27 Techniques for Reducing Setup Time (2 of 3) © John Wiley and Sons, Inc. 28 Techniques for Reducing Setup Time (3 of 3) © John Wiley and Sons, Inc. 29 Uniform Production Levels Result from smoothing production requirements on final assembly line Kanban systems can handle +/- 10% demand changes Reduce variability with more accurate forecasts Smooth demand across planning horizon Mixed-model assembly steadies component production © John Wiley and Sons, Inc. 30 Mixed-Model Sequencing © John Wiley and Sons, Inc. 31 Quality at the Source Visual control Jidoka o makes problems visible o authority to stop the Poka-yokes production line o prevent defects from Andons occurring o call lights that signal quality Kaizen problems o a system of continuous Under-capacity scheduling improvement; “change for o leaves time for planning, the good of all” problem solving, and maintenance © John Wiley and Sons, Inc. 32 Examples of Visual Control (1 of 3) © John Wiley and Sons, Inc. 33 Examples of Visual Control (2 of 3) © John Wiley and Sons, Inc. 34 Examples of Visual Control (3 of 3) © John Wiley and Sons, Inc. 35 5 Whys A key part in an effective Kaizen is finding the root cause of a problem and eliminating it A practice of asking “why?” repeatedly until the underlying cause is identified (usually requiring five questions) Simple, yet powerful technique for finding the root cause of a problem © John Wiley and Sons, Inc. 36 Total Productive Maintenance (TPM) Breakdown maintenance o Repairs to make failed machine operational Preventive maintenance o System of periodic inspection and maintenance to keep machines operating TPM combines preventive maintenance and total quality concepts © John Wiley and Sons, Inc. 37 TPM Requirements Design products that can be easily produced on existing machines Design machines for easier operation, changeover, maintenance Train and retrain workers to operate machines Purchase machines that maximize productive potential Design preventive maintenance plan spanning life of machine © John Wiley and Sons, Inc. 38 5S Workplace Scan 5S’s Goal Eliminate or Correct 1. Seiri (sort) Keep only what you need Unneeded equipment, tools, furniture; unneeded items on walls or bulletin boards, items blocking aisles or stacked in corners; unneeded inventory, supplies, or parts; safety hazards 2. Seiton (set in A place for everything and Items not in their correct places; correct places not obvious; aisles, order) everything in its place workstations, and equipment locations not indicated; items not put away immediately after use 3. Seiso (shine) Cleaning, and looking for Floors, walls, stairs, equipment, and surfaces not clean; cleaning materials ways to keep clean and not easily accessible; lines, labels, or signs broken or unclean; other organized cleaning problems 4. Seiketsu Maintaining and Necessary information not visible; standards not known; checklists (standardize) monitoring the first three missing; quantities and limits not easily recognizable; items can’t be categories located within 30 seconds 5. Shitsuke Sticking to the rules Number of workers without 5S training; number of daily 5S inspections (sustain) not per-formed; number of personal items not stored; number of times job instructions not available or up-to-date © John Wiley and Sons, Inc. 39 Supplier Networks Long-term supplier contracts Synchronized production Supplier certification Mixed loads and frequent deliveries Precise delivery schedules Standardized, sequenced delivery Locating in close proximity to the customer © John Wiley and Sons, Inc. 40 Implementing Lean Production Use lean production to finely tune an operating system Somewhat different in North America than Japan Lean production is still evolving Lean production is not for everyone © John Wiley and Sons, Inc. 41 Benefits of Lean Production (1 of 2) Reduced inventory Improved quality Lower costs Reduced space requirements Shorter lead time Increased productivity © John Wiley and Sons, Inc. 42 Benefits of Lean Production (2 of 2) Greater flexibility Better relations with suppliers Simplified scheduling and control activities Increased capacity Better use of human resources More product variety © John Wiley and Sons, Inc. 43 Lean Production Drawbacks Highly variable demand Large variety of low-volume products Custom engineered products Mass production parts Unexpected changes in demand or supply © John Wiley and Sons, Inc. 44 Lean Services Basic elements of lean production apply equally to services Most prevalent applications o lean retailing o lean banking o lean health care © John Wiley and Sons, Inc. 45 Leaning the Supply Chain (1 of 2) “Pulling” a smooth flow of material through a series of suppliers to support frequent replenishment orders and changes in customer demand Firms need to share information and coordinate demand forecasts, production planning, and inventory replenishment with suppliers and supplier’s suppliers throughout supply chain © John Wiley and Sons, Inc. 46 Leaning the Supply Chain (2 of 2) Pull a smooth flow of material through the system Build a highly collaborative business environment Adopt the technology to support your system Consider “near shoring” © John Wiley and Sons, Inc. 47 Lean Six Sigma Lean and Six Sigma are natural partners for process improvement Lean o Eliminates waste and creates flow o More continuous improvement Six Sigma o Reduces variability and enhances process capabilities o Requires breakthrough improvements © John Wiley and Sons, Inc. 48 Value Stream Mapping (VSM) A tool for analyzing process flows and eliminating waste Specialized icons related to o lean production o material and information flows o “aha” Kaizen bursts © John Wiley and Sons, Inc. 49 Lean and The Environment Commit to eliminate environmental waste Involve staff in planning and implementation Locate and eliminate environmental waste using lean tools Empower end enable employees Recognize new improvement opportunities © John Wiley and Sons, Inc. 50 VSM Shapes © John Wiley and Sons, Inc. 51 VSM for Milling & Welding © John Wiley and Sons, Inc. 52 VSM for Emergency Room © John Wiley and Sons, Inc. 53 Copyright © John Wiley & Sons, Inc. or the author, All rights reserved. Students and instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. No part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. © John Wiley and Sons, Inc. 54 Operations Management: Creating Value Along the Supply Chain Second Canadian Edition Russell, Taylor, Bayley, Castillo Chapter 6 Processes and Technology © John Wiley and Sons, Inc. Learning Objectives 1. Discuss outsourcing decision factors, provide examples of process plans, and use break-even analysis for process selection. 2. Explain several tools for process analysis, including flowcharts and process maps. 3. Discuss the steps required to redesign a process to achieve breakthrough improvements. 4. List recent technological advances in manufacturing systems and explain factors often overlooked in the financial analysis of technology decisions. © John Wiley and Sons, Inc. 2 Lecture Outline Process Planning Process Analysis Process Innovation Technology Decisions © John Wiley and Sons, Inc. 3 Process Planning Process o Group of related tasks with specific inputs & outputs Process design o tasks to be done & how they are coordinated among functions, people, & organizations Process strategy o an organization’s overall approach for physically producing goods and services Process planning o converts designs into workable instructions for manufacture or delivery © John Wiley and Sons, Inc. 4 Process Strategy Vertical integration o extent to which firm will produce inputs and control outputs of each stage of production process Capital intensity o mix of capital (i.e., equipment, automation) and labor resources used in production process Process flexibility o ease with which resources can be adjusted in response to changes in demand, technology, products or services, and resource availability Customer involvement o role of customer in production process © John Wiley and Sons, Inc. 5 Outsourcing Cost Speed o Cheaper to buy than o Is it faster to buy make Reliability Capacity o Are they reliable o Not operating at full Expertise potential o Are they better Quality o Are we consistent © John Wiley and Sons, Inc. 6 Process Selection Projects o one-of-a-kind production of a product to customer order Batch production o process many different jobs at the same time in groups or batches Mass production o produce large volumes of a standard product for a mass market Continuous production o used for very-high volume commodity products © John Wiley and Sons, Inc. 7 Sourcing Continuum © John Wiley and Sons, Inc. 8 Product-Process Matrix © John Wiley and Sons, Inc. 9 Types of Processes Project Batch Production Mass Production Continuous Production Type of product Unique Made-to-order Made-to-stock Commodity (customized) (standardized) Type of customer One-at-a-time Few individual customers Mass market Mass market Product demand Infrequent Fluctuates Stable Very stable Demand volume Very low Low to medium High Very high No. of different products Infinite variety Many, varied Few Very few Production system Long-term project Discrete, job shops Repetitive, assembly Continuous, process lines industries Equipment Varied General-purpose Special-purpose Highly automated Primary type of work Specialized contracts Fabrication Assembly Mixing, treating, refining Worker skills Experts, craftspersons Wide range of skills Limited range of skills Equipment monitors Advantages Custom work, latest Flexibility, quality Efficiency, speed, low Highly efficient, large technology cost capacity, ease of control Disadvantages Non-repetitive, small Costly, slow, difficult to Capital investment, lack Difficult to change, far- customer base, expensive manage of responsiveness reaching errors, limited variety Examples Construction, Machine shops, print Automobiles, televisions, Paint, chemicals, shipbuilding, spacecraft shops, bakeries, computers, fast food foodstuffs education © John Wiley and Sons, Inc. 10 Process Selection With Break-Even Analysis (1 of 4) Study cost trade-offs based on demand volume Cost o Fixed costs constant regardless of the number of units produced o Variable costs vary with the volume of units produced Revenue o price at which an item is sold © John Wiley and Sons, Inc. 11 Process Selection With Break-Even Analysis (2 of 4) Total revenue o price times volume sold Profit o difference between total revenue and total cost © John Wiley and Sons, Inc. 12 Process Selection With Break-Even Analysis (3 of 4) Total cost = fixed cost + total variable cost TC = cf + vcv Total revenue = volume x price TR = vp Profit = total revenue − total cost Z = TR – TC = vp – (cf + vcv) cf = fixed cost V = volume (i.e., number of units produced and sold) cv = variable cost per unit p = price per unit © John Wiley and Sons, Inc. 13 Process Selection With Break-Even Analysis (4 of 4) TR = TC vp = cf + vcv vp − vcv = cf v(p − cv) = cf Cf v= p − cv Solving for Break-Even Point (Volume) © John Wiley and Sons, Inc. 14 Break-Even Analysis Fixed cost = cf = $2,000 Variable cost = cv = $50 per unit Price = p = $100 per unit Break-even point is cf 2000 v= = = 40units p − cv 100 − 50 © John Wiley and Sons, Inc. 15 Break-Even Analysis: Graph © John Wiley and Sons, Inc. 16 Process Selection – Multiple Processes Process A Process B $2,000 + $50v = $10,000 + $30v $20v = $8,000 v = 400 units Below or equal to 400, choose A Above or equal to 400, choose B © John Wiley and Sons, Inc. 17 Process Plans Set of documents that detail manufacturing and service delivery specifications o assembly charts o operations sheets o quality-control check-sheets © John Wiley and Sons, Inc. 18 Assembly Chart © John Wiley and Sons, Inc. 19 Operations Sheet for Plastic Part © John Wiley and Sons, Inc. 20 Process Analysis Systematic study of all aspects of a process o make it faster o more efficient o less costly o more responsive Basic tools o process flowcharts o diagrams o maps © John Wiley and Sons, Inc. 21 Flow Charts in Microsoft Visio © John Wiley and Sons, Inc. 22 Building a Flowchart Determine objectives Define process boundaries Define units of flow Choose type of chart Observe process and collect data Map out process Validate chart © John Wiley and Sons, Inc. 23 Process Flowcharts Look at manufacture of product or delivery of service from broad perspective Incorporate o nonproductive activities (inspection, transportation, delay, storage) o productive activities (operations) © John Wiley and Sons, Inc. 24 Process Flowchart Symbols © John Wiley and Sons, Inc. 25 Process Flowchart of Apple Processing © John Wiley and Sons, Inc. 26 Process Map or Swimlane Chart of Restaurant Service © John Wiley and Sons, Inc. 27 Simple Value Chain Flowchart © John Wiley and Sons, Inc. 28 Process Innovation (1 of 2) Total redesign of a process for breakthrough improvements © John Wiley and Sons, Inc. 29 From Function to Process © John Wiley and Sons, Inc. 30 Process Innovation (2 of 2) © John Wiley and Sons, Inc. 31 High-Level Process Map © John Wiley and Sons, Inc. 32 Principles for Redesigning Processes (1 of 2) Remove waste, simplify, and consolidate similar activities Link processes to create value Let the swiftest and most capable enterprise execute the process Flex process for any time, any place, any way Capture information digitally at the source and propagate it through process © John Wiley and Sons, Inc. 33 Principles for Redesigning Processes (2 of 2) Provide visibility through fresher and richer information about process status Fit process with sensors and feedback loops that can prompt action Add analytic capabilities to the process Connect, collect, and create knowledge around process through all who touch it Personalize process with preferences and habits of participants © John Wiley and Sons, Inc. 34 Techniques for Generating Innovative Ideas (1 of 2) Vary the entry point to a problem o in trying to untangle fishing lines, it’s best to start from the fish, not the poles Draw analogies o a previous solution to an old problem might work Change your perspective o think like a customer o bring in persons who have no knowledge of process © John Wiley and Sons, Inc. 35 Techniques for Generating Innovative Ideas (2 of 2) Try inverse brainstorming o what would increase cost o what would displease the customer Chain forward as far as possible o if I solve this problem, what is the next problem Use attribute brainstorming o how would this process operate if... our workers were mobile and flexible there were no monetary constraints we had perfect knowledge © John Wiley and Sons, Inc. 36 Technology Decisions (1 of 2) Financial justification of technology o Purchase cost Includes add-ons to make technology work o Operating Costs Visualize how the technology will be used o Annual Savings Better quality and efficiency save money o Revenue Enhancement New technology can enhance revenue © John Wiley and Sons, Inc. 37 Technology Decisions (2 of 2) Financial justification of technology o Replacement Analysis When to upgrade to new technology depends on competitive environment o Risk and Uncertainty It is risky to invest and risky to not invest o Piecemeal Analysis Make sure new and existing technology are compatible © John Wiley and Sons, Inc. 38 Components of Digital Transformation © John Wiley and Sons, Inc. 39 Product Technology (1 of 3) Computer-aided design (CAD) o Creates and communicates designs electronically Group technology (GT) o Classifies designs into families for easy retrieval and modification Computer-aided engineering (CAE) o Tests functionality of CAD designs electronically Collaborative product commerce (CPC) o Facilitates electronic communication and exchange of information among designers and suppliers © John Wiley and Sons, Inc. 40 Product Technology (2 of 3) Product data management (PDM) o Keeps track of design specs and revisions for the life of the product Product life cycle management (PLM) o Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal Product configuration o Defines products “configured” by customers who have selected among various options, usually from a Web site © John Wiley and Sons, Inc. 41 Process Technology (3 of 3) Standard for exchange of product model data (STEP) o Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture Computer-aided design and manufacture (CAD/CAM) o Electronic link between automated design (CAD) and automated manufacture (CAM) Computer aided process (CAPP) o Generates process plans based on database of similar requirements E-procurement o Electronic purchasing of items from e-marketplaces, auctions, or company websites © John Wiley and Sons, Inc. 42 Manufacturing Technology (1 of 2) Computer numerically control (CNC) o Machines controlled by software to perform a range of operations with the help of automated tool changers; collects processing information and quality data Flexible manufacturing system (FMS) o A collection of CNC machines connected by an automated material handling system to produce a wide variety of parts Robots o Programmable manipulators that can perform repetitive tasks; more consistent than workers but less flexible Conveyors o Fixed-path material handling; move items along a belt or chain; “reads” package labels and diverts them to correct destination © John Wiley and Sons, Inc. 43 Manufacturing Technology (2 of 2) Automatic guided vehicle (AGV) o Driverless trucks that move material along a specified path; directed by wire or tape embedded in floor or by radio frequencies Automated storage and retrieval system (ASRS) o An automated warehouse; items placed in a storage system and retrieved by fast-moving stacker cranes; controlled by computer Process Control o Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, maintenance, and quality Computer-integrated manufacturing (CIM) o Automated manufacturing systems integrated through computer technology; also called e-manufacturing © John Wiley and Sons, Inc. 44 Information Technology (1 of 4) Business – to –Business (B2B) o E-transactions between businesses usually via the Internet Business – to –Consumer (B2C) o E-transactions between businesses and their customers usually via the Internet Internet o A global information system of computer networks that facilitates communication and data transfer Intranet o Communication networks internal to an organization; can also be password (i.e., firewall) protected sites on the Internet © John Wiley and Sons, Inc. 45 Information Technology (2 of 4) Extranet o Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners Bar Codes o Series of vertical lines printed on packages that identify item and other information Radio Frequency Identification tags (RFID) o Integrated circuit embedded in a tag; can send and receive information; a “twenty-first century bar code” with read/write capabilities Electronic data interchange (EDI) o Computer-to-computer exchange of business documents over a proprietary network; very expensive and inflexible © John Wiley and Sons, Inc. 46 Information Technology (3 of 4) Extensible markup language (XML) o A markup language that facilitates computer–to–computer communication over the Internet by tagging data before its is sent Enterprise resource planning (ERP) o Software for managing key functions of an enterprise, including sales, marketing, finance, accounting, production, materials management & human resources Supply chain management (SCM) o Software to manage flow of goods and information among a network of suppliers, manufacturers and distributors Customer relationship management (CRM) o Software to manage interactions with customers; compiling and analyzing customer data © John Wiley and Sons, Inc. 47 Information Technology (4 of 4) Decision support systems (DSS) o Information system to hel